Delaware Chancery Court Conference On J. Crew

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE J. CREW GROUP, INC. :

SHAREHOLDERS LITIGATION :
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: Civil Action
: No. 6043-VCS
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Chancery Court Chambers

New Castle County Courthouse
Wilmington, Delaware
Friday, February 11, 2011
2:30 p.m.
BEFORE: HON. LEO E. STRINE, JR., Vice Chancellor.
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OFFICE CONFERENCE
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CHANCERY COURT REPORTERS
500 North King Street - Suite 11400
Wilmington, Delaware 19801-3759
(302) 255-0525
2
1 APPEARANCES:
2 STUART M. GRANT, ESQ.

JOHN C. KAIRIS, ESQ.
3 Grant & Eisenhofer, P.A.
-and-
4 PAMELA S. TIKELLIS, ESQ.
ROBERT J. KRINER, ESQ.
5 Chimicles & Tikellis LLP
-and-
6 MARK LEBOVITCH, ESQ.
AMY MILLER, ESQ.
7 of the New York Bar
Bernstein Litowitz Berger & Grossmann LLP
8 -and-
CHRISTINE S. AZAR, ESQ.
9 Labaton Sucharow LLP
-and-
10 JONATHAN GARDNER, ESQ.
IRA SCHOCHET, ESQ.
Labaton Sucharow LLP
12 For Plaintiffs
13 A. THOMPSON BAYLISS, ESQ.

LEONARD GREEN, ESQ.
14 Abrams & Bayliss LLP
-and-
15 PETER L. WELSH, ESQ.
RODMAN FORTER, ESQ.
Ropes & Gray LLP
17 For Defendants TPG Capital, L.P.,
James Coulter, Chinos Holdings, Inc., and
18 Chinos Asquisition Corportion
19 GREGORY P. WILLIAMS, ESQ.

Richards, Layton & Finger LLP
20 -and-
SANDRA C. GOLDSTEIN, ESQ.
21 J. WES EARNHARDT, ESQ.
of the New York Bar
22 Cravath, Swaine & Moore LLP
For Defendants Mary Ann Casati,
23 David House, Stephen Squeri and
Josh Weston
24 Appearances (Cont'd)

3
1 APPEARANCES: (Cont'd)
2 WILLIAM M. LAFFERTY, ESQ.

Morris, Nichols, Arsht & Tunnell LLP
3 -and-
TARIQ MUNDIYA, ESQ.
4 ANTONIO YANEZ, JR., ESQ.
of the New York Bar
5 Willkie Farr & Gallagher LLP
For Defendant Millard Drexler
6
MATTHEW FISCHER, ESQ.
7 Potter Anderson & Corroon LLP
-and-
8 MEREDITH E. KOTLER, ESQ.
MOLLY M. LENS, ESQ.
Cleary Gottlieb Steen & Hamilton
10 For Defendants J. Crew Group, Inc.,
Heather Reisman Stuart Sloan, Steven
11 Grand-Jean and James Scully
12 JAMES E. BRANDT, ESQ.

of the New York Bar
13 Latham & Watkins LLP
For Defendant Leonard Green
14 & Partners
15
16
17
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18
19
20
21
22
23
24

4
1 THE COURT: Here, I'm not sure -- you
2 know, I would just say, my initial impression is, I'm
3 not exactly sure what exigency exists at all in this
4 sense, which is, when is the vote?
5 MR. WELSH: March 1st.
6 THE COURT: March 1st. I don't know
7 what I'm supposed to do between then and now that
8 really would be prudent.
9 I could do a lot of things that would
10 be precipitous -- you know, not as well thought out as
11 they should be. And I'm not sure you do that in a
12 situation where somebody faces some irreparable
13 injury, and where the benefits of judicial judgment
14 might outweigh, you know, the harm that would be
15 threatened -- judicial action is waived by that
16 irreparable injury.
17 Here, you've got a situation where I'm
18 not quite sure what it means to specifically perform a
19 settlement in this context. I'm a person who takes
20 civil procedure pretty seriously. I'm one of those
21 strange people -- to the extent you liked law school
22 at all, a lot of people didn't like civil procedure.
23 I kind of did. I mean, I did. And I clerked for two
24 federal judges, and I take it seriously.

5
1 And one of the things we know about
2 this context, is my friends to my right here -- who,
3 for people who are reading the transcript, would be
4 the plaintiffs -- they represent a class of people who
5 have the right to themselves determine whether they
6 ultimately will settle the case or not. So, you get
7 something different than the normal analysis because,
8 in the first instance, I would be finding, which would
9 normally be enough, I think, and it might be enough as
10 against particular plaintiffs. Right? I mean, who
11 knows. But in the normal situation, if you had a
12 railroad dispute, or something else, and counsel with
13 authority negotiated something in this context. And
14 you say you reached bullet points. There have been
15 situations where, you know, courts have found, even
16 though it was subject of future documentation to turn
17 eight bullet points into 35 pages, that it was a
18 binding settlement and that you have to -- at least,
19 to the extent a party is trying to renege on one of
20 the eight material terms, they could be held to that.
21 And you go forward and you enforce that against the
22 client. Of course, that's in a situation where the
23 lawyer is speaking for the client with authority.
24 We have here layers of analysis --

6
1 right? --which, one, you'd have to go through the
2 normal analysis to get there. Even if you assume, for
3 purposes of that analysis, that each of the lawyers
4 who were participants in the settlement actually bind
5 their own named plaintiff, that's quite a distance
6 from binding the people who would have to be given
7 notice and opportunity to be heard at the settlement.
8 Right? Because part of why we do that under Rule 23,
9 because of the representative nature of a class
10 action, is to make sure that we've heard that there
11 aren't any things that haven't been ferreted out.
12 Where is Mr. Ernst? Did he come?
13 MR. LAFFERTY: No.
14 THE COURT: I got some emergency
15 letters that we'll talk about -- the New York aspect.
16 A Delaware lawyer has now written on behalf of, it
17 looked like, the same letter I got from the New York
18 folks before. I guess he didn't show up. The
19 New York folks would get a chance to comment. So, you
20 know, I can't do -- not that I don't -- not that I
21 don't have sympathy or empathy for anyone in this
22 circumstance, but I'm not saying that I don't -- is
23 that I don't know that there's anything that I can do
24 with respect to enforcing the settlement before a vote

7
1 that would make any sense.
2 On the other hand, you know -- for the
3 plaintiffs -- you know, I'm not going to enjoin a vote
4 when I had a preliminary injunction hearing scheduled
5 and people called me up and, because of our rule or
6 law, or whatever it is, and they told me they were all
7 happy with each other and they had gotten it done. So
8 I don't know what to do.
9 I do think it's one of these
10 situations where, honestly, if the defendants prove
11 out to be right, that the plaintiffs' group that
12 forged the settlement shouldn't expect to be rewarded.
13 What I mean is, as a fair consequence to me of this
14 kind of kerfuffle would be that a class might get the
15 benefits of something without there being any real
16 compensation for the lawyers, because that's the only
17 way to be fair, frankly, to the process in general.
18 Because you can't have a situation where part of why
19 you have notice to the Court -- as many of you've
20 heard, I'm not quite sure what we're supposed to do
21 with the notice. We get the notice. What am I
22 supposed to do? I was raised Catholic, but I leave to
23 the clergy the blessing. I'm just part of the
24 congregation. And I'm a judge. I don't just stand up

8
1 and bless the thing. So you told me about it. But
2 you can't have a situation where plaintiffs routinely
3 go around, have defendants give extra consideration
4 and get nothing.
5 On the other hand, defendants do that
6 at their own risk; right? I mean, there's a way you
7 can slow down the gears of a deal and say, "We're not
8 doing this until there's a binding settlement, and
9 that means notice and opportunity to be heard." But I
10 think something would have to be done, as a
11 consequence, honestly, if I find that the plaintiffs
12 reneged.
13 At the very least, you can't come in
14 and say, "Give us our fee," just as if this was a
15 normal situation. "Oh, we made a mistake, Your Honor.
16 We overreacted to what the defendants did. There was
17 no breach of the thing but we should get, you know,
18 3.3 million, which is a third of the 10 million in
19 consideration, plus the therapeutic benefits." That
20 would be a pretty poor incentive structure.
21 I guess I'm not sure what anybody
22 really wants me to do at this point. I'm not sure
23 anybody's really thought through how I would enforce a
24 settlement against a class. I was kind of hoping

9
1 Mr. Ernst was here. I would say, on the record, I'm
2 certainly willing to have the New York lawyers talk to
3 the Delaware lawyers.
4 Has there been any communication with
5 you, Mr. Grant?
6 MR. GRANT: Not with me.
7 Mr. Lebovitch had an interesting discussion.
8 THE COURT: Mr. Lebovitch is a New
9 York lawyer.
10 MR. GRANT: Maybe he should tell you
11 what the New York plaintiffs had in mind.
12 THE COURT: Okay.
13 MR. LEBOVITCH: Early on in the case,
14 I think we had a schedule set in place. Certain of
15 the New York lawyers called, said, you know, "Let's
16 work something out together." They wanted us to
17 litigate in New York, kind of on the philosophy that
18 you could get a bigger disclosure fee in New York.
19 And I said, "Goodbye."
20 MR. GRANT: We're not very interested
21 in further discussions with the people in New York.
22 THE COURT: Before I talk about any
23 organizational structure, they all talk to the
24 leadership. Hey, I'm open to anything. If they have

10
1 some proposal apparently to propose a single firm --
2 maybe it's one of you. I don't know. Maybe it's
3 Cross & Simon. I don't know.
4 What I'm saying on the record -- and
5 you can deliver the transcript -- Mr. Ernst and his
6 Delaware lawyer, he's welcome to make a motion -- you
7 know, file a case. I think, if people want to be in
8 part of a case, generally they should file a complaint
9 or move to intervene. I'm sure, from the defendants'
10 perspective, it should all be in one place anyway.
11 That's my thoughts. You're all here. I don't know
12 what you want me to do and when. I'm not inclined to
13 enjoin a vote.
14 MR. WELSH: Your Honor, if I can maybe
15 just speak to that briefly. Peter Welsh from Ropes &
16 Gray on behalf of GT capital. In the near term, on an
17 expedited basis, we agree with Your Honor that there's
18 no need to move forward with litigation over this
19 matter, or other litigation between now and the
20 shareholder vote. We agree with that.
21 At the same time, however, Your Honor,
22 we, defendants in the underlying litigation, are very
23 interested in proceeding with enforcement of the
24 settlement. We had a binding settlement in this

11
1 matter. We think the essential terms were all clearly
2 spelled out, reduced to writing in the MOU, agreed to
3 by the plaintiffs. In fact, the plaintiffs have
4 acknowledged that there was a binding agreement
5 reached over the Martin Luther King Day weekend. The
6 only issue at this point is an issue of whether that
7 agreement has been breached. We are --
8 THE COURT: Is it the only issue? I
9 mean, I don't know how it got to this point. You
10 know, I have my own guesses. You don't guess what you
11 do in my position. You learn things. I have my own
12 sense that maybe some people could have taken a walk
13 around the block a couple times before they
14 communicated with each other. It's not unusual to
15 face cases where that doesn't happen.
16 How do I deal with the thing? Is
17 there some example in Wright and Miller where this had
18 happened and a court has -- how would I do it? I
19 would order them, as plaintiffs' lawyers, to what? I
20 understand dismissing -- I could -- I guess I could
21 get to the point where I say there was a settlement
22 with their named plaintiffs and they're out. They got
23 what they got. And actually, by denying the
24 defendants the possibility of getting the global

12
1 release, it's really not at all fair for them to try
2 to seek some sort of fee. I suppose that's a road you
3 could go to; right? Because they should -- each of
4 the plaintiffs' lawyers should have been talking to
5 their own client. And so we shouldn't be in a
6 situation here, you know, unless I'm going to hear
7 something unusual, which we could hear through
8 discovery where somebody says, "Well, even for my own
9 client it was really wait for the notice." I suspect
10 we won't hear that.
11 So you can imagine some situation
12 where perhaps there could be -- maybe that means
13 there's the dismissal of the Delaware case. Have you
14 really thought through that that's where you want me
15 to go? Because what I understand what that would
16 leave is you might get these folks dismissed. Maybe
17 it reduces the size of your class, and then the people
18 to whom notice and opportunity to be heard would be
19 given -- could have other representatives pick up the
20 cudgel and litigate the claims.
21 MR. WELSH: Your Honor, when I say the
22 only request remains in this breach, speaking
23 respectfully to the named plaintiffs -- the lead
24 plaintiffs in this case -- we understand, Your Honor,

13
1 with respect to classwide settlements, that's a much
2 more complicated issue. We have thought quite a bit
3 about that, as a joint defense group here.
4 Your Honor, I think a couple thoughts
5 on this point. Certainly there are other shareholder
6 plaintiffs out there, apart from these named
7 plaintiffs in New York, as Mr. Grant and Mr. Lebovitch
8 mentioned. This settlement was a hard fought
9 arm's-length settlement reached in good faith, which
10 Mr. Grant described in his letter to the Court as a
11 settlement that would provide significant and arguably
12 unprecedented corporate governance relief through a
13 litigation settlement.
14 THE COURT: So you left that
15 "arguably" in there.
16 MR. WELSH: That list, the litany of
17 corporate process enhancements that were agreed to, as
18 part of the settlement, which are significant, gives,
19 from our perspective, significant -- gets, we believe,
20 from the shareholders perspective and is entirely
21 possible. Your Honor, our view is that there's
22 another plaintiff out there who believes that this is
23 a fair settlement and would be willing to assume the
24 mantle of lead plaintiff and proceed with the class

14
1 settlement approval process. If that's not the
2 case --
3 THE COURT: Wait a minute. I mean,
4 what does that mean? The idea that someone would come
5 forward as a plaintiff's lawyer and -- you're in a
6 difficult position now; right? Your friend would
7 argue, for the reasons in their complaint, you know,
8 you deserve it. But you can choose now to either do
9 the original deal or pay the 10 million bucks more,
10 and offer it to the stockholders; right?
11 MR. WELSH: Sorry. I'm not
12 understanding.
13 THE COURT: You don't have to pay the
14 10 million more now; right?
15 MR. WILLIAMS: We've already
16 implemented much of the settlement, Your Honor.
17 THE COURT: I understand that, with
18 respect to the go-shop and all that kind of stuff.
19 The extra 10 million bucks --
20 MR. WELSH: The 10 million bucks has
21 not been paid to the shareholders. We've taken steps
22 to pay it to the paying agent to pay the shareholders.
23 THE COURT: If the vote goes up.
24 MR. WELSH: Correct.

15
1 THE COURT: I'm not saying you're in a
2 good spot. Theoretically, you could take $10 million
3 off the table -- right? --and go back to the deal you
4 had before and go to the stockholders. I understand
5 what you're saying. You may want to enforce
6 settlement. I'm talking about the time frame. I'm
7 here with a lot of lawyers on an emergency basis. And
8 everybody wrote me a letter saying, "We got to get
9 together." There's a lot of reading on complex things
10 to do to even think about where you want to go. Where
11 you just raised to me the hypothetical that there's
12 going to be a plaintiff's lawyer whose objective is
13 not going to get more for the class but to step
14 forward and say, "I want to present the done deal to
15 the stockholders with notice and opportunity to be
16 heard. And that's my role in life and then I'm going
17 to get what for that?"
18 MR. WELSH: I mean, I don't want to
19 speak for other plaintiffs' counsel. I don't know
20 what they would expect to get for that.
21 THE COURT: What would you expect to
22 get, unless you pull the ten? I mean, part of the
23 reason why I said to them -- one of the things I could
24 imagine coming out of this, they get bupkus. The only

16
1 equitable result from the defendants' standpoint is
2 they get bupkus because they -- if I find that they
3 induced you all to do this and then left you exposed,
4 without getting the full benefit of the agreement,
5 with the release that at least in equity you shouldn't
6 have to, you know, face -- frankly, don't reduce the
7 10 million to the class, or -- I don't know -- half is
8 going to pay the fee, whether it was you guys.
9 MR. WELSH: The company was going to
10 pay.
11 THE COURT: The company was going to
12 pay the fee. You're just not going to do that. Get
13 you coming and going. But that's all different.
14 Somebody is going to come present to me this
15 settlement -- some new lawyer? Because, from the
16 standpoint of a new lawyer coming from a class -- the
17 duty of the new lawyer is to represent the class, not
18 to represent the pristine nature of this and to do
19 right by you guys. And I didn't know how somebody in
20 good faith could say, "We're just going to press to
21 make sure that the class gives the release," because
22 for all the reasons you feel ill-used -- right? --if
23 this goes down, would be a reason why the class has
24 already gotten what it was going to get. Why am I

17
1 coming as a representative of the class to just
2 basically make sure that the class gives the release?
3 MR. WELSH: Because part of the
4 settlement is the 10 million-dollar payment.
5 THE COURT: But that's your choice.
6 MR. WELSH: It's part -- that's part
7 of the terms of the settlement.
8 THE COURT: What I'm saying is, you're
9 saying -- do you have some reason to believe, for
10 example, that your friends in New York wanted press?
11 Is that why they want to join us?
12 MR. WELSH: We have no idea. We
13 received no inbound calls. We've had no
14 communications.
15 THE COURT: You guys might pull the
16 ten, somebody comes in and says, "We want the ten."
17 And over $10 million I'm supposed to have a hearing?
18 MR. WILLIAMS: Your Honor, let me
19 clear up one thing. We're not pressing for any
20 expedited hearing with respect to whether or not this
21 settlement is enforceable. We think it can be done on
22 whatever schedule Your Honor thinks is appropriate.
23 But we think -- do I think that some plaintiff out
24 there might say, "You know what? Yeah, I would like

18
1 to get $10 million for the class. Absolutely I
2 would." And some plaintiff's lawyer might feel an
3 incentive to do that? Absolutely.
4 From our standpoint, we would like to
5 litigate, on whatever schedule Your Honor thinks is
6 appropriate, the question of whether or not Your Honor
7 can direct these folks to go forward in good faith
8 with what they agreed to do.
9 I understand there's some procedural
10 issues. Even if we don't prevail on that, these
11 clients are bound by this agreement and we should not
12 have to litigate against these people.
13 THE COURT: No. No. I understand
14 that you have a right to do that. All I'm saying is,
15 I think the difficult situation you're in -- I want to
16 hear from Mr. Grant and Mr. Lebovitch about what they
17 want to do. The difficult situation you're going to
18 be in is we're a good way through February. You're
19 going to present a deal on the first day of March.
20 You're going to have to make a strategic decision
21 whether you give them the 10 million that they have
22 been led by everybody in this room to believe they
23 would get or not. And the thing about this -- one of
24 the reasons why we usually do injunctions is

19
1 irreparable injury. When it's a fight about the
2 consequences of 10 million bucks, you're not going to
3 get an injunction because you can figure out -- I
4 mean, frankly, the advisors on the deal probably got
5 way more than 10 million bucks. And so, you know, I
6 doubt they want to have an injunction hearing to look
7 at that.
8 MR. WILLIAMS: Your Honor, we're not
9 envisioning an injunction hearing. I'm fine to go
10 forward but on some responsible schedule where
11 somebody researches this. I want everybody to know --
12 I didn't want anybody to have a transcript where
13 Strine didn't observe that it's a fairly unusual idea
14 here that I'm going to impose some settlement on a
15 class. I don't think that's what we're talking about.
16 I don't know of any precedent for that.
17 And even the idea of this sort of --
18 it's like when people put these silly things in merger
19 agreements. Yes, you've heard a Delaware Judge say a
20 silly thing in a merger agreement or somebody can't
21 change their recommendation. Right? So the merger
22 proxy is going to come out in six months and you can't
23 change your recommendation. In the meantime, the deal
24 price is at $50, and the market cap of the company is

20
1 1 billion. It makes pizzas and Warren Buffett and
2 Bill Gates stop by with Jimmy Buffett and they eat a
3 slice of the pizza and it's the best thing they ever
4 did, and concluded they want to buy at 10 billion to
5 take it private so they could serve the pizza to their
6 friends. But your board is sworn to sell it at a
7 billion and not change its recommendation. You can
8 put it in the agreement and then you can lie in your
9 proxy. We still -- we are duty bound still to
10 recommend this. We recommend you take a billion.
11 You should know that people with good
12 money -- in fact, we have a certified check from the
13 U.S. Government for $10 billion sitting in our thing
14 because they want to eat our pizza. You should know
15 this material fact. Irrespective of that elderly
16 person, or person whose eyes have now changed and
17 you've had lazer surgery, you can see far but you
18 can't see near, and are too vain to actually put on
19 the reading glasses, you've gotten the proxy thing and
20 all you read in bold is we recommend the merger;
21 right? Probably silly and immature.
22 Here, I'm not sure how I craft
23 something where I have -- I impress upon them the duty
24 to go out and say, you know, go get the settlement

21
1 done after this happens. I think the best we're
2 talking about is the named clients may go away; right?
3 Mr. Grant, where are we with this?
4 This is a mess, honestly.
5 MR. GRANT: Let me tell you a few
6 things.
7 THE COURT: I will -- these are not
8 the clearest assertion of violations, let me just say,
9 that I have ever heard.
10 MR. GRANT: Understood. Let's talk
11 about kind of where we are and who is giving up what.
12 Actually, we're the ones who have given up more in,
13 you know, what happens if we don't have a settlement,
14 because we have a right to go for a preliminary
15 injunction. We now lost that right. There's not
16 enough time and Your Honor is not going to hear it.
17 It's not like --
18 THE COURT: I don't think you can get
19 anything responsively done.
20 MR. GRANT: It's not like we're
21 getting some kind of benefit here and they have all
22 the detriment. We kind of got suckered into this and
23 with a certain amount that we have given up.
24 THE COURT: Because you and

22
1 Mr. Lebovitch and Miss Tikellis, you guys just kind
2 of --
3 MR. GRANT: Country lawyers.
4 THE COURT: Yeah. Actually, I
5 understand that they were going to do a remake and
6 you -- and the first three years you play Gomer.
7 Then, when you left to have your own show,
8 Mr. Lebovitch was going to be Goober.
9 MR. GRANT: That's definitely a
10 possibility.
11 So the first thing they say --
12 THE COURT: The first one selling
13 knishes.
14 MR. GRANT: They want to enforce the
15 settlement and they say it's enforceable. I was just
16 wondering whether it's this one that was sent to them,
17 or whether it's this one, with all the red lining and
18 cross out and everything else they sent us. I just
19 wondered which one is going to be enforced because
20 that would be interesting.
21 There's no doubt that we each thought
22 we had a settlement. The question is, was there a
23 meeting of the minds? And based on the letters that
24 went back and forth, I claim that there's not even a

23
1 meeting of the minds, let alone whether there's a
2 breach of that. There's no meeting of the minds, and
3 that's because we understood we were getting certain
4 benefits, that there would be an extension of the
5 go-shop. That information we kept confidential --
6 that they'd make an effort to try to actually really
7 sell it. And they must have thought that they had
8 certain rights to do certain things, like announce
9 what was going on to everyone, and to basically tell
10 the world that the go-shop was a joke because here's
11 the proxy and they didn't have to do that. They could
12 have waited until the end and sent all that out and
13 sent a message that said, "We're not taking this thing
14 seriously." So that's the lack of meeting of the
15 minds.
16 If there is a settlement, then the
17 question is: what are the terms? Did they violate the
18 materials? Your Honor said we weren't clear. It's
19 not the clearest articulation of the violation. Part
20 of the problem is, I don't know what the terms are to
21 tell you who violated what. All I know is we didn't
22 get what we wanted.
23 THE COURT: One of the issues, though,
24 that we face -- why I think Vice Chancellor Lamb put

24
1 in a decision you should inform the Court, or
2 something like that. Why I told you all, informing me
3 of things like this I don't know what to do with. If
4 you actually have a negotiated stipulation of
5 settlement that's fully baked, then -- and everybody
6 signed it -- then you're in a different situation.
7 MR. GRANT: Absolutely.
8 THE COURT: People come to the Court.
9 I understand the time pressures. You're in a
10 situation where you don't want to go forward with the
11 injunction proceeding. You're going to do things. So
12 you don't actually -- I mean, I'm actually not of the
13 view that it can't be fully scrivened. The only
14 reason why I'm saying that -- I'm not saying it
15 doesn't take a lot of things. But we do know there
16 are situations where people have drafted full
17 acquisition agreements in 48 hours. And part of what
18 the lesson of this may be for people is, you know, as
19 ugly as it is, you're going to put in that 48 hours of
20 work sometimes. And maybe have you to put it in
21 before you call the Court. So that there's any, you
22 -- and then you get into things like I know the
23 defendants position. We got SEC disclosure
24 requirements. People get clear about what gets

25
1 disclosed or not gets disclosed, or what it is.
2 I'm saying, I don't want to get into
3 the merits. I honestly don't really understand
4 exactly why the disclosure that no one else has come
5 forward yet discourages someone who isn't in the
6 process. You can't, by definition, discourage someone
7 who was already in the process. There might be some
8 good reason, and I don't want to get into it. You
9 know, it might suggest you have a wide open field and
10 that you can just come in and, if you want preppy --
11 buy preppy clothing -- we're in a good place for a
12 J. Crew kind of hearing. Delaware. It's a J. Crew
13 kind of place. We have Talbots, J. Crew. All these
14 kind of -- I know J. Crew likes to think it's not
15 preppy. Until it changes the name, it kind of is, by
16 definition.
17 MR. GRANT: There's another part of
18 this that's really important. Even if there is a
19 settlement --
20 THE COURT: You got Chinos Holding.
21 Come on.
22 MR. GRANT: The release could only be
23 as of the time the settlement was released. So that,
24 even if there was a settlement and there's a release

26
1 as of that date, to the extent that there is conduct
2 post that time --
3 THE COURT: I understand. You also
4 understand the predicament of the nature of this
5 was -- is -- and I understand your point about giving
6 up the preliminary injunction. And in some ways,
7 let's be fair to the plaintiffs' lawyers here --
8 right? --they did something that was unusual for
9 another reason, which is cynical observers of the
10 process. They could count the money, not just for the
11 class. But the reality is, if they had come and
12 gone -- you know, they got -- definitely got a
13 10 million-dollar benefit. They got other benefits.
14 So they clearly got a non-- I mean, a substantial
15 attorney fee that they're going to be able to get.
16 That's what I'm saying.
17 Maybe the ultimate police factor here
18 is -- Mr. Grant, I think the thing I'm going to have
19 to -- it's going to be up in the air. What do I do if
20 I determine that, frankly, whether you're acting in
21 good faith or not, you actually did have a deal, and
22 that what you're trying to do is kind of renegotiate
23 something?
24 MR. GRANT: You'd have to find we had

27
1 a deal, what the deal is, we breached the deal.
2 THE COURT: Assume I go down that. I
3 assume the consequences should be a dismissal against
4 your named plaintiffs?
5 MR. GRANT: Could it be, if all those
6 things happened? The answer is part of the case could
7 be dismissed. To the extent that we amend it to say,
8 look at this bad stuff that you did, from the time
9 that you allegedly reached this deal on -- no, that
10 couldn't be dismissed.
11 THE COURT: You're saying things like,
12 if there was actually a bad faith shopping process?
13 MR. GRANT: Correct. Which we think
14 there is. We think that's part of this whole -- to
15 the extent there is one, you breached -- we think
16 there wasn't even a meeting of the minds because they
17 went and did something that obviously they will
18 testify they believed they could do, and we didn't
19 believe they could do, so hence there's no meeting of
20 the minds.
21 THE COURT: The thing about it is,
22 when you get a settlement, it doesn't -- you will have
23 to prove -- one of the things that's at issue, you
24 have to -- you obtain, by nature of this -- right?

28
1 --you principally -- the restrictions on people's
2 freedom are the things that other people are required
3 to do, or something you extracted from the defendants.
4 To the extent that there isn't something that
5 prohibits them in the agreement from doing something,
6 and you're back to argue that it's somehow impliedly
7 prohibited by something, that's a much more difficult
8 argument, you have to understand. That's not a
9 meeting of the minds argument because you're going to
10 have -- these are the eight things the defendants were
11 willing to do. You can't go and point out there's 16
12 other things that they did. Well, the point about the
13 16 other things is, unless they're somehow prohibited
14 by the eight things, leaving some room obviously for
15 something that would be impliedly prohibited, but
16 you'd have to make a very clear kind of argument to
17 that point, they're free to do that. We're in
18 America.
19 MR. GRANT: You are not free in
20 America to eviscerate the other person's consideration
21 that you just bargained for.
22 THE COURT: That's what I mean by the
23 implied covenant. You'd be arguing that within, say,
24 paragraph 4, that's your point about the go-shop --

29
1 that there's something about the continuity of the
2 go-shop period and the utility of that continuity
3 which was fundamentally disturbed by the revelation
4 that, as of a certain date during the go-shop period,
5 no one had yet come forward.
6 MR. GRANT: That, and the sending out
7 of the proxy. Scheduling the meeting and all those
8 things were done to basically eviscerate the
9 effectiveness of the go-shop.
10 THE COURT: Not as long as you have,
11 but for a pretty long time, things like asking that
12 the meeting be held no earlier than X is a pretty
13 obvious subject for negotiation. And for -- and I
14 understand how -- I understand, for example -- and
15 part of the reason why I'm raising this, as candidly
16 as I am with you, Mr. Lebovitch, I understand your
17 point, which is I get -- one of the things that
18 defense lawyers frequently do, but sometimes
19 plaintiffs' lawyers -- because I had someone come in
20 recently and try to argue for a fee -- about cutting a
21 termination fee in a case where 50 percent of the
22 votes were locked up. I think I gave him a fee for
23 some disclosure. I'm like, I just want to let
24 everybody know I didn't fall off the vegetable truck.

30
1 Who cares what the termination fee is. Who is going
2 to come into a process where the majority of the votes
3 are locked up in favor of the deal?
4 I understand, from the standpoint of
5 someone lacking to play in this process, if I were an
6 outsider, knowing that the vote wouldn't be any
7 earlier than April 15th, let's just say, would be an
8 advantage, because I'd have more time to kick the
9 tires, even with the go-shop period. People look at a
10 go-shop and maybe not even care about the fee enough,
11 but they have got time to deal with it. Where, if
12 it's March 1st, you know, it's -- especially if you're
13 strategic or something. There's real resource
14 allocation, internal entity factors that come into
15 play to decide whether you're going to be involved in
16 this kind of process.
17 The reason why -- the fact that I get
18 your argument is also why we're going to have a big
19 discussion. What your friends are going to say, did
20 you, people, as matter as Mr. Grant, Mr. Lebovitch and
21 Miss Tikellis, Mr. Kriner know that that could be a
22 factor. They could have put on the table that we
23 won't have the meeting earlier than that. They never
24 asked for that. And if they didn't ask for it, how

31
1 can it be a breach for us to do something?
2 MR. GRANT: I understand, Your Honor.
3 I'm getting back to your other point. Obviously we
4 didn't do this lightly, because we could have taken
5 what I think was a sucker punch that was delivered
6 from the other side and still claim victory and said,
7 "Look what we got. We got new process. $10 million.
8 We can ask the Court for a large fee and all that kind
9 of stuff."
10 THE COURT: What happened? Were some
11 clients upset about this?
12 MR. GRANT: We feel we got suckered.
13 That's what we feel like. We are putting our -- we're
14 putting our clients' interests and the class'
15 interests first. We're doing what I think everyone
16 wants us to do, which is why, by the way, to say, if
17 you want to do this, you're going to have to put your
18 fee at risk, I'm not sure is the right thing to do.
19 But to say because you --
20 THE COURT: Something has to be at
21 risk.
22 MR. GRANT: I understand that. But to
23 say, well, we want to put an incentive on you that, if
24 you truly believe that they have done wrong by you, if

32
1 you truly believe they breached the settlement, or
2 there wasn't a meeting of the minds that in order to
3 protect your clients' interests you need to put your
4 fee at risk, most law firms -- not the ones sitting
5 here -- most law firms will say, "I don't want to do
6 that. Thank you very much."
7 THE COURT: You can't be in a
8 situation where, at the very least, what you get out
9 of it is what you expected to get out of the
10 settlement. The interesting thing there, not only
11 would the defendants have paid the benefits of the
12 settlement, they will have had to incur litigation
13 fees in order to enforce the settlement that they
14 would not have had to pay, plus you would get the same
15 fees. Plus you would have subjected them to the risks
16 that you were going to continue to litigate the case.
17 There has to be some consequence in
18 here. And because it's not a class action, you know,
19 an accountability mechanism where simply your clients
20 get dismissed and you get the right to have the same
21 fee, it seems to me it's not an equitable solution.
22 I'm not ruling out anything. You know, that allows
23 people to prospect for more with really not much -- I
24 understand you don't do this lightly.

33
1 MR. GRANT: In fact, this Court knows
2 we've never done this.
3 THE COURT: I point out, ordinarily
4 people would say -- most cynical people would say
5 about the plaintiffs' bar, this is already -- they
6 have already figured out -- they're already on to
7 let's think about how much can we get from them in
8 light of this. The key thing is push through. Make
9 sure the settlement stays on track and move on to
10 other cases.
11 MR. GRANT: That would be the
12 economically smart thing for us to do, from our own
13 standpoint.
14 THE COURT: What's the schedule you're
15 on? I don't know why I would -- I do think there is
16 some -- there is -- it's hard for me to say to the
17 defendants they don't have the right to at least go
18 forward and try to do something with the settlement.
19 I don't think it really makes much sense, until we
20 know it happens on the merger vote.
21 MR. GRANT: I think we can move
22 forward. I think they should make a motion to do
23 that. I also think they should not slow down our
24 discovery. One of the reasons why I wanted to have

34
1 this is we're moving forward to prosecute a damage
2 action.
3 THE COURT: What I'm saying is, I'm
4 not going to have anything happen -- why should I do
5 anything between now and the merger vote?
6 MR. GRANT: I don't know you have to
7 do anything.
8 THE COURT: Why should I have them
9 have to answer discovery from you guys about anything
10 until we see how the merger vote goes?
11 MR. GRANT: Let's assume that the
12 merger passes. Let's say it's voted up. They're
13 still going to face a damage action from the class.
14 THE COURT: They're under a duty to a
15 litigation hold.
16 I mean, I was prepared, you know. Of
17 all the dreck I do, this is not the worst dreck. I
18 had a hearing scheduled. I was perfectly fine to hear
19 all the wonderful lawyers come in and talk to me about
20 whether I should enjoin the Chino's preppy merger.
21 Greenville, Delaware is one of the ten preppiest
22 places in the United States in the original book.
23 I don't know why you guys get to go
24 first. It seems to me actually, when you call me up

35
1 or e-mail me -- I think it was e-mail on a weekend or
2 whatever it was -- that kind of first order of
3 business is to actually determine whether you got a
4 settlement or not.
5 MR. GRANT: So are we going to delay
6 the damage action for that?
7 THE COURT: It's a damages action. I
8 don't know how long it takes. I don't think it's the
9 most fruitful thing in the world. I think one of the
10 things the defendants are going to have to figure out
11 is, what do you get over all this? What I mean about
12 the 10 million is this. If we had something where
13 somebody is -- I don't doubt that you could find some
14 lawyer in the world between now and March 1st, if you
15 had some Judge who was more inclined than -- I was
16 going to characterize it in some way that was
17 different than more inclined -- more inclined than I
18 was to hold a hearing between now and March 1st. You
19 could find some class action lawyer to come in and
20 champion the settlement you would get. What you would
21 get out of that process, I would suggest, would not be
22 worth very much to your clients. How would that
23 happen?
24 And what's going to happen -- this is

36
1 where, frankly, I guess your clients are the ones
2 trying to take this thing private again; right?
3 MR. WELSH: That's right.
4 THE COURT: They miss it. And they
5 have been missing it for how long now?
6 MR. WELSH: About three or four years.
7 Yeah.
8 THE COURT: And so they'll have it
9 back, if things go well. But they're going to have to
10 decide between now and March 1st whether they have it
11 back, whether they offer $10 million more. Even if
12 somebody wanted to champion the settlement, they don't
13 have time to champion the settlement.
14 If, by March 1st -- if March 1st you
15 don't offer the $10 million, the stockholders either
16 turn down the deal or not based on the original deal.
17 If you offer the 10 million, you'll have offered it.
18 It will get -- you'll have made binding
19 representations under the SEC that, irrespective of
20 what happened, you think you're still going to go
21 forward because other people relied upon it and you'll
22 have paid it out. In which case, really, the
23 plaintiff's lawyer cannot come in, I don't think, one
24 whose re-entry vehicle was adequately insufflated,

37
1 where they entered the earth's a atmosphere, could not
2 come into a court and say, "I want to make sure the
3 class gives the release." It would be very, very
4 strange. The class will have already gotten the
5 10 million. Your client will have already paid it.
6 Where your client will be in a
7 situation is where your client felt like it bargained
8 for and other defendants bargained for a release and
9 they didn't get it, and you're now going to enforce
10 it, to the extent that you can. And then we got the
11 New York suit and all that kind of good stuff.
12 But Mr. Grant, I think, in the order
13 of things, they kind of get to go first with that.
14 MR. GRANT: Well, they go first.
15 They're going to have to show that it was a meeting of
16 the mind, what that actual contract is, whether it's
17 their draft, our draft, something in between.
18 MR. WILLIAMS: The one we agreed on.
19 MR. GRANT: That's got a lot of
20 interesting things that seem to be missing. They're
21 going to have to prove that. Then, Your Honor, they
22 say now we ought to have a fairness hearing.
23 THE COURT: Let me say the following.
24 I don't know that we're going to have a fairness

38
1 hearing. The two things that I wanted on my shelves
2 that you might not -- I wanted Wright and Miller and
3 Moores. Okay? I use them. I don't think that's
4 where we would go. That's why I was saying about
5 where I think we would be going. If you think that I
6 don't think -- you talk about dreck. I think that's
7 proceedings to enforce settlement agreements are
8 about -- they're about up there with motions to enjoin
9 arbitrations or advancement cases, in my book.
10 Fascinating things to do. They may rank somewhat
11 above books and records cases, except that I almost
12 always deal with books and records cases from the
13 bench. Having made a rare and novel exception for
14 that, I now find I as soon go back to dealing with
15 that from the bench.
16 You know, I hate them. I mean, I'll
17 be candid. A little bit of therapy with you all. I
18 despise them. I don't enjoy them at all. But I'm
19 sorry. You all e-mailed me. You're some of the best
20 practitioners on both sides that we have in this
21 court. You told me you had a deal. Now, you had
22 something. You had enough to tell me to take off a
23 preliminary injunction hearing. You got bullet
24 points. We've enforced things like this before. And

39
1 it seems to me, in that circumstance, when the
2 defendants have realtered a deal, whether you like it
3 or not, they get at least the chance to go forth and
4 say whether they have got a deal or not. Because if
5 they have a deal and it's enforceable against your own
6 clients, then really they shouldn't have to face
7 discovery from you.
8 Now, what they have to think about is
9 they end up in a bizarre situation where they have
10 still given away the consideration, that the
11 plaintiffs -- I don't know what the plaintiffs in
12 Delaware as a group hold as a percentage of the class.
13 Do you have any sense?
14 MR. GRANT: Less than 1 percent.
15 THE COURT: Less than 1 percent.
16 MR. GRANT: And there are others out
17 there prepared to hire us for a damage case, if these
18 people are dismissed, because there's a settlement.
19 So we will be right back here filing the same claim
20 again.
21 THE COURT: That brings in a whole
22 other host of issues.
23 MR. WILLIAMS: Could have a motion on
24 that one, too, Your Honor.

40
1 THE COURT: I don't get it. Put aside
2 whether the same firms are back, which I hadn't really
3 been contemplating until I was just -- absent by our
4 candid friend absolutely said, you know, you've got a
5 group. Mr. Ernst is not here. You got a group of
6 people in New York who will be all too happy to
7 prospect for more. Right? So you still have time
8 between now and March 1st to get this resolved.
9 Is it galling -- I guess it is. I
10 wasn't in all your discussions. I don't know the
11 spirit of the deal and all this kind of stuff. As I
12 said, I'm a little bit -- these are not the clearest
13 allegations I've ever seen of a breach of material
14 terms that were outlined in the agreement that I've
15 ever seen. But you're also in a situation where you
16 know that you're in an enviable procedure posture
17 because it's a representative case.
18 I would urge everybody to find out --
19 for whatever it's worth -- find out what this New York
20 group -- I hear them knocking. They have got
21 something. Maybe they're there to champion the
22 settlement. But I suspect that they're more
23 interested in the situation where they pick up the
24 codger and where they come in and simply say, well,

41
1 regardless of what Mr. Grant and Mr. Lebovitch and
2 Miss Tikellis did, you know, there are other people
3 who are not bound by the settlement and who are free
4 to litigate this case regardless. They could just do
5 it before Your Honor.
6 But even then, Mr. Grant, what I would
7 say to them, even if they don't really face that
8 predicament, it's not clear to me why I ought to have
9 the defendants being whipsawed. They can finish the
10 dispute with you all. It can be done -- not really
11 looking forward to it -- but it can be done by early
12 mid summer. And then they know who they litigate
13 against.
14 MR. GRANT: Maybe that's what we need
15 is a schedule right now. If they want to bring on
16 this motion --
17 THE COURT: What I'm saying to
18 everybody is, it is not sane or useful for anybody to
19 be doing anything until March 1st. Go spend time with
20 the love of your life on Valentine's Day. You know,
21 if you don't have one, find one. Spend that time
22 finding one. And then we'll figure out whether the
23 people approve the merger or not. I think you've got
24 a group decision to make about do you give them the

42
1 ten or do you not. Right?
2 MR. WELSH: Understood.
3 THE COURT: But I don't know -- I know
4 that everybody -- I don't really understand the
5 rationale. And there's no way for a court to analyze
6 this. The reason about the notice, there's no reason
7 for a court to have a hearing about the prospective
8 fairness of a settlement. People need to see these
9 things play out. And then the classes have to make
10 determinations. That's the way the process is.
11 People give sort of preview advisory things based on
12 snippets. That's why I'm always hesitant. I told
13 Mr. Williams on a few occasions, Mr. Lafferty,
14 Mr. Grant, I say to say anything when you call me
15 about these things, because I don't know what anything
16 I say you could try to take to the bank. Strine
17 thinks this is good. This is another example where
18 the parties to the deal now are not even going through
19 with it. I think --
20 MR. GRANT: That's why we decided to
21 e-mail this time, since we knew how you felt about it.
22 THE COURT: I really don't. I don't
23 mean to waste your time. It's a bad predicament for
24 the Court. I think actually it's wiser in some ways

43
1 for the Court to be honest and say, "I'm not going to
2 give you an impulsive reaction. You're big boys and
3 girls and you're taking a risk by not having a fully
4 documented settlement." You know that you're taking
5 that risk. You're not the only parties in the world
6 who do it, but most times it will pay. When it
7 doesn't, the last thing I want that somebody thought
8 the Court of Chancery blessed -- imagine if I had
9 given some preliminary blessing. Then I would be
10 implicated in preliminarily blessing something that
11 you all now don't even -- at least -- I'm taking that
12 you're all acting in good faith. People can disagree
13 because they were there and they heard -- they had a
14 sense of things.
15 MR. GRANT: Your Honor, if we didn't
16 have you on the phone, the flip side of that is -- and
17 we had to articulate it and you made someone say, you
18 know, now tell me about the settlement, tell me what
19 you think it is. And then you said, we've had other
20 Judges in this court do that -- to turn around and
21 say, you know, did you hear what he said? This is
22 your time to speak up, if you disagree with that. So
23 it's an oral expansion to the agreement.
24 THE COURT: Let me say this. There is

44
1 a written term sheet. What people typically do when
2 they put a settlement on the record is they read
3 something like a term sheet or bullet points, and then
4 you ask all the clients to say do they agree to them.
5 What you and Mr. Lebovitch are saying is that they
6 engaged in conduct that is impliedly prohibited by
7 that term sheet. For example, there is nothing in
8 that term sheet where anybody would have stood up to
9 me that day and said they cannot have a meeting until
10 April 15th.
11 So nothing would have happened in that
12 situation to flesh out what came.
13 MR. GRANT: You're probably right.
14 THE COURT: And it would have all been
15 on the fly. Then for me -- how do I know? I
16 actually -- you know, I am a fairly traditional
17 dressing guy in terms of how I dress. We have J. Crew
18 clothes in the house. I have no idea how long you
19 should have a go-shop to effectively market a company
20 like J. Crew. I don't know what the industry players
21 are. That sounds -- you know, if this were an oil
22 company, I'd want a bit more of a go-shop. But for a
23 clothier, it seems fine. That's my expert judicial
24 guidance. It's -- that's not what we get paid to do.

45
1 MR. GRANT: Understood. Would it be
2 possible to get on Your Honor's calendar the first
3 week in March?
4 THE COURT: Why don't you report back.
5 What day of the week is the first?
6 MR. WELSH: Tuesday, I want to say.
7 THE COURT: Why don't you report back
8 on Friday after the vote -- what happened on the vote.
9 Before anybody gets on my calendar, I want you all to
10 get together. I think, Mr. Grant and Mr. Lebovitch,
11 your friend Mr. Ernst and his colleagues, you probably
12 need to give them a call and figure out what's on
13 their mind. The defendants are probably wanting to
14 want to do that, anyway, to figure out what's going
15 on.
16 MR. GRANT: We know what's going on.
17 They stayed up in New York. This case is moving
18 forward. Now that the case has no longer settled,
19 they want in on it. That's what's going on.
20 THE COURT: The two words that you
21 should always never use, as you become older and
22 wiser, are what? What? Always, and never. Right?
23 Especially when you have kids. My dear wife,
24 everybody who knows her will tell you she's a much

46
1 nicer -- Mr. Lafferty, Mr. Grant -- so much nicer than
2 I am. She uses "always" and "never" much more than
3 me, and she finds herself backtracking, like you will
4 never, ever. I'm like, the next day it's happening
5 again. I don't know. Mr. Grant, your intuition about
6 what they want at this stage? It may be absolutely
7 right. Unless you talk to them, you don't know.
8 The other reality about this
9 situation, all I'm saying is, the fact that this is
10 gummed up is unfortunate. People have gotten
11 emotional, but that doesn't mean you shouldn't act
12 rationally.
13 I know defendants hate paying twice.
14 You do. But the New York people being on the scene,
15 you know, I could say this. For example, I could see
16 the defendants saying, "We'll pay more to the class if
17 you jerks take nothing in a fee." You wanted to be
18 the heroes here? Fine. I could see, frankly, you
19 guys want to be -- you're the ones who are willing to
20 blow up your own deal? Fine. That could be rational
21 at this stage, because you get what you want and you
22 pay instead of -- I have no -- the world -- all I'm
23 saying is everybody on both sides ought to be open to
24 thinking about the situation that you're in, because

47
1 what we're looking for, instead of enjoining a deal or
2 doing anything, is talking about some goofy thing
3 where we're going to spend a couple months -- here's
4 another fun fact.
5 How are we going to litigate this next
6 stage? The thing that I know is probably not going to
7 be hearing from my friends Mr. Grant, Mr. Lebovitch
8 from the podium. I haven't heard Miss Goldstein this
9 afternoon. Right? I probably won't be. Because you
10 guys are going to be in a very unusual -- somebody is
11 looking a little confused. There's going to be --
12 you're going to be in a seat that you're usually
13 putting other people in. You're going to be the
14 deponent. And there's a couple of you in the room
15 that people have been waiting to depose for a long
16 time. It's just going to be -- it's just like there's
17 going to be a line -- I don't know. Has Greg been
18 deposed before? I don't know. He might have been
19 smart enough to stay out of this. It's just going to
20 be kind of interesting, because some of the better
21 litigators in the country will now see how good they
22 are as witnesses. Right? How are you going to prove
23 the spirit of the deal is going to be the people that
24 negotiated it? Right?

48
1 MR. GRANT: I'm sort of an expert
2 witness.
3 THE COURT: Expert witness is a little
4 bit different. We'll have witnesses who make their
5 own speaking objections, things like that. It will be
6 lovely.
7 But seriously, you're going to have to
8 get other people in your firm involved probably in the
9 situation. And it's going to be -- as I said, in some
10 ways it's amusing. But it's really not. The reason
11 why I encourage everybody to talk to the New York
12 people, get this transcript and digest it. There is
13 some time between now and March 1st. Maybe something
14 can be restructured.
15 What I'm saying about the
16 restructuring, just to be, I think, kind of blunt
17 about what seems to me to be some of the obvious human
18 dynamics involved, is the defendants will be probably
19 close to vomitous about the idea that there would be
20 any reward for this on the plaintiffs' side.
21 MR. GRANT: I don't know why the Court
22 has encouraged that. We've worked very hard to do
23 best for the class.
24 THE COURT: From your perspective, if

49
1 you put -- I'm not saying they're right. I'm not
2 saying you're wrong. I'm saying I know human
3 dynamics. And they're going to take the position that
4 you were wrong and that they had a deal with you.
5 They're in a situation now, as a practical matter, in
6 which to get a global resolution of the case, because
7 I know you suggest somebody could come in and pick up
8 the cudgel for the settlement. Who would want to be
9 written about as the one who did that? You may have
10 to pay more just because of you guys deciding not to
11 go forward.
12 You may be right. What I'm saying
13 about it, I'm being blunt. Mr. Grant, I observe
14 things from various people's perspectives. Right?
15 You would have to get more now to go forth with the
16 settlement because you've said that this is not what
17 you all bargained for.
18 MR. GRANT: We said the go-shop was a
19 joke. My guess is, if we got evidence on what they
20 have done to move forward with this go-shop that they
21 agreed to, after all the things they did to give the
22 signal that this is a joke, that there would be an
23 awful lot of embarrassment on the other side of the
24 table here. That's how we would prove a lot of what

50
1 our --
2 THE COURT: Look, that's a whole --
3 what I'm saying is any situation -- then there's
4 nothing to put together. And there's -- we're just
5 putting it off until we're going to have a trial some
6 day and figure out if there's a settlement. All I was
7 observing was that, if I were the defendants and they
8 were trying to globally resolve this, you know, you
9 have to sometimes take a deep breath. What I was
10 observing for you guys is I think a pretty obvious
11 thing is they wouldn't be looking to reward you all
12 because they perceive you as having rightly or wrongly
13 having pulled out of a deal that they had struck in
14 good faith with you. And that -- who knows? --with
15 the New York plaintiffs -- everybody ought to be
16 talking to each other.
17 If what you're saying is this deal is
18 so far off the mark that the only -- it's not even
19 close, then we're going to go down the line,
20 obviously.
21 MR. GRANT: Your Honor, just so
22 there's no mistake. There's two things we're
23 asserting: one is that either there is no meeting of
24 the minds here and therefore no settlement, or they

51
1 breached the settlement. For you to -- for the Court
2 to take the view that we should somehow be punished
3 personally as lawyers because we are protecting our
4 clients' interests and asserting a breach from what
5 they have done, I don't get.
6 THE COURT: I'm not -- no one is
7 saying you'll be personally punished.
8 MR. GRANT: I keep hearing that the
9 remedy here, if we're wrong, is to take our fee away.
10 We've never raised fee at any time in the discussions
11 with the defendants, at any time before the Court. At
12 any time.
13 THE COURT: I don't know how have you
14 a situation in which the expectancy of the one party
15 to a settlement was that the representative -- the
16 lead plaintiff representatives who negotiated it would
17 honor their agreement, present it to a class, with the
18 potential for the defendants to get a complete and
19 global release. Have a situation -- remember, I have
20 not said one thing about the merits, about who is
21 right or wrong. I've expressly said that. I have
22 not. But if you get to a situation where I were to
23 conclude that the plaintiffs in this case had reached
24 a binding agreement, then reneged, the defendants

52
1 had -- as a practical matter -- had to put up the
2 consideration, including the $10 million, not gotten
3 the release, to have a situation -- I'm not talking
4 about punishment. It would be up to you.
5 If you made an application saying,
6 "Look, Your Honor, even though you're dismissing our
7 clients, we should get attorneys' fees for the benefit
8 we produced" -- that's where I'm saying -- what I was
9 talking about in the last instance is this. I have no
10 idea what they did during the go-shop or not. They
11 might have been the best bankers in the world, best
12 shoppers. They may have been totally disloyal
13 fiduciaries. I don't know. You all have more insight
14 than I do.
15 And there's a period of time between
16 now and March 1st where I was urging the defendants to
17 do this. The fact that you feel like you put up
18 10 million for nothing doesn't mean you should be
19 stupid. If you put up 15 and got the whole deal done,
20 it might still be wise. But I think, because you're
21 pretty good at human nature, Mr. Grant, that's part of
22 how you've been so successful -- you know, one of the
23 things from their point is they put up 15. They're
24 going to want to know that they're not providing a

53
1 windfall to the folks that they dealt with on the
2 other side who they feel like don't honor the
3 settlement. Rightly or wrongly, that's going to be a
4 human instinct.
5 MR. GRANT: It's an instinct that
6 should be resisted. What we're talking about here is
7 not just -- if there is a settlement, the thing is, we
8 still have a claim post that settlement for the
9 breaches of the settlement and the breaches of
10 fiduciary duty that occurred post that settlement.
11 THE COURT: No. I think here's the
12 thing that the reason why I think what I just said
13 about that you're going to get a deal between now and
14 March 1st is just not going to happen. People don't
15 usually settle -- I understand the whole idea. People
16 don't settle cases to just have them reopen. And if
17 you already believe that the shopping process is just
18 infected, then there's no possibility to have a
19 settlement now. And I understood one of your
20 stronger points, although I have to look at the
21 scrivening, is this argument -- that somehow it was
22 releasing future conduct. Obviously you can't do
23 that. People usually, when a transaction closes and
24 you do everything related to the transaction -- you

54
1 know, the point would be, unless you have some
2 discernible reason, that's why you do confirmatory
3 discovery; right?
4 MR. GRANT: Usually deals are reached
5 after the transaction. There's something wrong with
6 the transaction. You'll pay more money, do whatever.
7 And this is the transaction that's going to move
8 forward, which is how this could have worked had they
9 not decided to say, "Well, we're going to schedule the
10 meeting while we're doing the go-shop."
11 THE COURT: I understand. One of the
12 things that always exists here is a lot of times
13 people present things that provide inarguably greater
14 opportunity for some superior transaction to come
15 forward. And the consideration that's given is that
16 greater opportunity. The fact that the superior
17 transaction comes -- doesn't come forward doesn't mean
18 that anybody did anything wrong. Why you would have
19 confirmatory discovery is you take a deposition or
20 something like that. If you somehow think -- who is
21 the banker?
22 MR. WELSH: Perella Weinberg.
23 THE COURT: They were representing the
24 special committee. You know, take confirmatory

55
1 discovery. You find out they actually shopped the
2 thing. Is there something? And you make a judgment
3 as a representative of the class. If you find out
4 during that that you bargained for a longer go-shop
5 and nobody actually shopped and they treated it as a
6 no-shop, I think what you would say there is that you
7 can't support the settlement.
8 MR. GRANT: Right.
9 THE COURT: That you've learned
10 something else about the behavior of it that
11 undermines it. The whole premise was obviously that
12 it would be in fact a go-shop, which means you would
13 affirmatively shop and they actually treat it as a
14 no-shop, and you would say we can't support the
15 settlement.
16 MR. GRANT: That's exactly what I've
17 just done here. Without the confirmatory discovery, I
18 saw what they did.
19 THE COURT: Part of what I'm saying --
20 Mr. Grant, part of why I'm saying I want to take it
21 slow and deliberate is there is a lot of layers
22 thinking that has to be done before you start treating
23 settlements in this representative action context as
24 being analogous to settlements that are not. And

56
1 that's why I want to think through it and that's why
2 I'm not moving fast.
3 What I'm trying to observe for
4 everybody, you can't -- you guys can't take this
5 personally, even though it was your decision as class
6 representatives; right? But it was your decision.
7 Obviously they're going to have some fairly strong
8 feelings in this situation -- particularly their
9 clients probably do. I'm sure that some of the -- we
10 would need Rosemary Woods to help clean up the tapes
11 of some of these conversations; right? I'm sure we've
12 got a few expletive deleteds there when the clients
13 found out that this wasn't going to happen. I'm just
14 being real about the strong feelings that are probably
15 running through. I saw some e-mail correspondence
16 between your colleague Mr. Lebovitch and
17 Miss Goldstein. It wasn't always the nicest on both
18 sides.
19 MR. GRANT: It's also going to get
20 worse, because one of the things we'll wind up doing
21 is having to depose a lot of lawyers on what advice
22 that they gave to say do we have to schedule a meeting
23 now. That's going to be their defense. We had to
24 schedule a meeting.

57
1 THE COURT: I said that to everybody
2 in the room. Part of why I was urging everybody to
3 rethink before March 1st is, you know, it's going to
4 be enjoyable because it's going to cost a lot of
5 money. It's also a fairly high profile matter, I
6 understand. I don't know if that's influencing things
7 or not. Having high profile lawyers have their
8 depositions taken can also be something that people
9 follow these kind of things and enjoy. I'll wait to
10 hear from you that Friday. I do not wish to hear from
11 any of you until you've talked to each other. Okay?
12 Do not write me.
13 Remember, I mentioned the people with
14 the -- I actually have -- still do not need reading
15 glasses, but I'm starting to notice a change. And
16 getting three page single-spaced letters in small type
17 is not helping. What I'm starting to do is, I'm not
18 reading them. If you want to send -- I would suggest
19 that there's not a Judge in this court who wouldn't
20 rather get a double-spaced letter than a single-spaced
21 letter, just for guidance. We'd all rather -- if you
22 want something, you file a motion -- please, if you're
23 going to write us a letter, give me a little space.
24 But don't pop off to me until you've spoken to each

58
1 other.
2 And I would think, find out -- just as
3 a courtesy to Mr. Ernst and the Delaware bar --
4 Mr. Grant, you and Mr. Williams gave him a call and
5 say together, "What's up? What do you want? The
6 Court mentioned you wrote a letter. You got something
7 to say? Say it. If you want to intervene, you know,
8 there's a way to do that. But tell us what you're
9 interested in."
10 MR. GRANT: If Mr. Williams is around
11 on Monday, I'll be happy to get together with him to
12 make that call.
13 MR. WILLIAMS: Your Honor, may I say
14 one thing? There's been a long extended discourse
15 between Your Honor and Mr. Grant and, in the course of
16 that, Mr. Grant has said many things which we could
17 well respond to, which we want to respond to, but
18 we're not going to respond to today. Please
19 understand, we don't acquiesce in much of anything
20 that he said, other than we agree that if we can't
21 resolve this in some way that we should have that
22 trial in the time period that Your Honor mentioned.
23 The other thing I would say, Your
24 Honor, you have rightly said, "Look, this will be a

59
1 mess and you should all think about it." And we will
2 think about it, and we have thought about it. We and
3 our clients have no desire to litigate settlements.
4 That's not what we are about. When you look at it
5 from our standpoint, we simply cannot be put in a
6 position where we agreed to a document that's not --
7 it's not nonbinding. A lot of MOUs say they're
8 nonbinding. This one doesn't say that. We can't be
9 in a position where we agree to something and
10 implement it and then we're told, "Thanks but no
11 thanks. Now we're going to have our cake and eat it
12 too by prosecuting a claim for damages." We can't
13 acquiesce in that. We have no desire to litigate on
14 settlements, but we're also in a position where
15 acquiescing is very difficult for our clients and for
16 us.
17 THE COURT: No. I get that. I
18 appreciate the restraint. Most people have been
19 pretty restrained today. I don't want to get into the
20 merits. You're right, when I mentioned the discovery
21 of the thing. It's not even clear that -- and I'm not
22 giving some advance opinion about whether you even
23 need depositions.
24 One of the quandaries we're in, we

60
1 talk about confirmatory discovery, which is one of the
2 things for to you think about is -- not to answer
3 today but to think about this. You've all done this
4 many times. There's a situation where it's binding in
5 this sense; right? It's binding in the sense that
6 those were the terms. And those are sufficiently
7 clear. And that their argument that things that your
8 clients did just doesn't fly. It's not enough of a
9 connection.
10 You then have the issue of, though,
11 activity, which is not covered by that but which would
12 be the subject of confirmatory discovery. You're
13 shaking your head a little bit.
14 MR. WILLIAMS: Can I interject
15 something? Say they're not binding, and then they say
16 it's all subject to confirmatory discovery. Now, I
17 didn't directly have this conversation with the
18 plaintiffs. But they told us they did not want
19 confirmatory discovery and so we have --
20 THE COURT: Had you already given --
21 you already had how much depositions.
22 MR. WILLIAMS: We hadn't had
23 depositions. I wasn't part of the call. But the
24 plaintiffs told us they don't want confirmatory

61
1 discovery, back when we were negotiating this.
2 MR. GRANT: The other thing that needs
3 to be added is, I also made absolutely clear to Mr --
4 I'm drawing a blank now -- Tariq. I said, you know --
5 sorry. I'm sorry.
6 MR. WILLIAMS: It's a common name.
7 MR. GRANT: It's been a long day. I
8 already argued one today.
9 THE COURT: He goes blank. You never
10 remember handsome, well-dressed people's names?
11 MR. GRANT: I made clear to Tariq, I
12 said, "You're not going to get a forward-looking
13 release. So if we reach the agreement today, that's
14 it. That's as far as you're getting the release."
15 That's why we didn't need confirmatory discovery.
16 Anything that happens from that point forward is fair
17 game. So that's the evidence that's going to come
18 out.
19 You're right. Didn't want
20 confirmatory discovery because there was going to be
21 no forward-looking release.
22 MR. MUNDIYA: Your Honor, I have no
23 recollection of talking about the scope of the release
24 with Mr. Grant. Zero recollection of that.

62
1 THE COURT: Although Mr. Grant didn't
2 remember your name.
3 MR. GRANT: Mark was on the phone
4 also.
5 MR. LEBOVITCH: I was on the phone.
6 What it's worth, the other aspect of this is the
7 driver here, which was discussed, was the process.
8 Not about the money. While you set a meeting,
9 whatever you want, paragraphs one and eight say
10 expressly you're extending a go-shop and you don't
11 make disclosures. And what happened when we had our
12 first conversation was, "Why the hurry? Why are we in
13 such a hurry?" The answer was, "You can't restart a
14 go-shop. You can't disclose things to TPG." That's
15 why there was a hurry here.
16 THE COURT: I really -- I just say, in
17 the interest of everybody's mental health, we're not
18 going to do this now. And Mr. Williams was
19 restrained. And really he didn't -- he was
20 restrained. I have actually, I think, given you guys
21 more of an ability to tell your story. I don't want
22 to hear -- I don't want -- this is so fascinating that
23 I want to hear it fresh and full.
24 You know, I'll just say, this was a

63
1 really -- it shows some of the clarity around things,
2 when Mr. Lebovitch, you jump in to correct a person,
3 when the only reason that person is speaking is
4 because you had to suggest to Mr. Grant that that
5 might have been the person to whom he said something.
6 There's a possibility Mr. Grant actually said what he
7 said, but not to the handsome lawyer named Tariq. I
8 don't know. But all I'm saying is, a moment ago
9 Mr. Grant didn't even recollect which lawyer he spoke
10 to. I forget --
11 MR. GRANT: Let the record reflect, I
12 am now over 50. That's becoming a more common
13 problem.
14 THE COURT: There are things I am able
15 to discuss -- my own prior decisions -- with almost
16 total objectivity now because I have no -- I mentioned
17 this to Mr. Williams. It's really true. I have no
18 current recollection of what I was thinking. I'm
19 happy -- I usually read them and happy to think I
20 still pretty much agree with that. That sounds pretty
21 good. It's not like I recall struggling over that.
22 Most I don't even know the name. I was bewildered the
23 other day. Saw this thing in the Delaware Law Weekly,
24 and there was an appeal and I had done a bench ruling

64
1 and awarded fees. I'm the kind of guy that does a
2 bench ruling and awards fees. But heck, I don't think
3 I did it in this case. It wasn't that long ago. No,
4 it was one of my colleagues. I mediated the case like
5 five years before. But I really couldn't tell. And I
6 have had people argue to me about some precedent. I
7 ask them who wrote it and it was me.
8 So I don't remember, like, from last
9 Monday what I ate. If you guys are all going to tell
10 me that you have photographic memories of what you all
11 said to each other, or that you don't get so caught in
12 your own hot air at times that you don't listen to
13 what's said back in response accurately, every one in
14 this room does that at times. Right? That's why we
15 have reporters. And we have great reporters. And as
16 hard -- and they don't always get it right because we
17 talk over each other. And imagine, when you argue
18 about what happens at conferences with the Judge when
19 it wasn't on the record? Sometimes we -- I give
20 people guidance.
21 People get upset. Mr. Grant thought I
22 was attacking the plaintiffs personally. I wasn't. I
23 was trying to be realistic about the way you get to
24 things is a look from each other's perspectives, and

65
1 they ain't -- really the clients on the defense side
2 aren't really probably thinking, Grant, Lebovitch,
3 Tekillis and Kriner are high in their pantheon right
4 now of people they want to give money to. That's just
5 real.
6 I've talked to people about things and
7 I know they don't hear the same things. You can say
8 the same words. I understand how it might be
9 surgical, it might not. This confirmatory discovery
10 issue is going to be interesting. It's also the scope
11 of the release, and all that kind of stuff.
12 We have to think, Mr. Williams, how
13 much, you know -- how we do this. That's part of why
14 I don't want to move fast. You guys have to think
15 after you hit the books about what actual relief you
16 can get.
17 And I didn't know. Again, I'm not
18 familiar. I didn't memorize the release -- or
19 whatever it was -- the bullet points -- to know
20 whether there was confirmatory discovery or not.
21 MR. WILLIAMS: Your Honor, we agree.
22 We think we should think about where things are and,
23 absent some better idea, we will be back before Your
24 Honor after the deal closes -- assuming it closes --

66
1 to schedule a hearing on our claim.
2 THE COURT: Good.
3 MR. WILLIAMS: Thank you.
4 (Conference adjourned at 3:50 p.m.)
10
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24

67
1 CERTIFICATE
2 I, DIANE G. McGRELLIS, Official Court
3 Reporter of the Chancery Court, State of Delaware, do
4 hereby certify that the foregoing pages numbered 3
5 through 66 contain a true and correct transcription of
6 the proceedings as stenographically reported by me at
7 the hearing in the above cause before the Vice
8 Chancellor of the State of Delaware, on the date
9 therein indicated.
10 IN WITNESS WHEREOF I have hereunto set
11 my hand at Wilmington, this 12th day of February,
12 2011.
13
14 /s/ Diane G. McGrellis

----------------------------
15 Official Court Reporter
of the Chancery Court
16 State of Delaware
17
18 Certification Number: 108-PS

Expiration: Permanent
19
20
21
22
23
24

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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE J. CREW GROUP, INC. :

Chancery Court Chambers

BEFORE: HON. LEO E. STRINE, JR., Vice Chancellor.

2 STUART M. GRANT, ESQ.

13 A. THOMPSON BAYLISS, ESQ.

19 GREGORY P. WILLIAMS, ESQ.

CHANCERY COURT REPORTERS

2 WILLIAM M. LAFFERTY, ESQ.

12 JAMES E. BRANDT, ESQ.

CHANCERY COURT REPORTERS

1 THE COURT: Here, I'm not sure -- you

2 know, I would just say, my initial impression is, I'm

3 not exactly sure what exigency exists at all in this

4 sense, which is, when is the vote?

5 MR. WELSH: March 1st.

6 THE COURT: March 1st. I don't know

7 what I'm supposed to do between then and now that

8 really would be prudent.

9 I could do a lot of things that would

10 be precipitous -- you know, not as well thought out as

11 they should be. And I'm not sure you do that in a

12 situation where somebody faces some irreparable

13 injury, and where the benefits of judicial judgment

14 might outweigh, you know, the harm that would be

15 threatened -- judicial action is waived by that

17 Here, you've got a situation where I'm

18 not quite sure what it means to specifically perform a

19 settlement in this context. I'm a person who takes

20 civil procedure pretty seriously. I'm one of those

21 strange people -- to the extent you liked law school

22 at all, a lot of people didn't like civil procedure.

23 I kind of did. I mean, I did. And I clerked for two

24 federal judges, and I take it seriously.

CHANCERY COURT REPORTERS

1 And one of the things we know about

2 this context, is my friends to my right here -- who,

3 for people who are reading the transcript, would be

4 the plaintiffs -- they represent a class of people who

5 have the right to themselves determine whether they

6 ultimately will settle the case or not. So, you get

7 something different than the normal analysis because,

8 in the first instance, I would be finding, which would

9 normally be enough, I think, and it might be enough as

10 against particular plaintiffs. Right? I mean, who

11 knows. But in the normal situation, if you had a

12 railroad dispute, or something else, and counsel with

13 authority negotiated something in this context. And

14 you say you reached bullet points. There have been

15 situations where, you know, courts have found, even

16 though it was subject of future documentation to turn

17 eight bullet points into 35 pages, that it was a

18 binding settlement and that you have to -- at least,

19 to the extent a party is trying to renege on one of

20 the eight material terms, they could be held to that.

21 And you go forward and you enforce that against the

22 client. Of course, that's in a situation where the

23 lawyer is speaking for the client with authority.

24 We have here layers of analysis --

CHANCERY COURT REPORTERS

1 right? --which, one, you'd have to go through the

2 normal analysis to get there. Even if you assume, for

3 purposes of that analysis, that each of the lawyers