An Ohio judge on March 20 dismissed a case accusing two activist investors of violating Ohio’s anti-greenmail statute, a decision that if it had gone another way stood to chill investment in Ohio corporations, raise the risk of more litigation, and potentially harm the state’s economy, according to experts.
Franklin County, Ohio Court of Common Pleas Judge Daniel Hawkins issued his order in the case originally filed in 2021 by Robbins Geller Rudman & Dowd LLP, a California plaintiff firm representing the Texas-based Corpus Christi Firefighters’ Retirement System against activist investors Macellum Capital Management and Ancora Holdings.
The plaintiff alleged that Macellum/Ancora engaged in a greenmail campaign by manipulating the trading price of publicly traded equity securities for Columbus, Ohio-based retailer Big Lots Inc., between March 6, 2020 and the present, violating Ohio’s anti-greenmail statute (Ohio Revised Code Section 1707.043).
The Texas firefighters’ group had asked the court to return all of their trading profits to the company, saying Macellum/Ancora had engaged in “manipulative practices.”
That’s not how Judge Hawkins saw it.
“This Court acknowledges that while the statute may colloquially be referred to as Ohio’s Anti-Greenmail statute, the statute does not actually contain the term “greenmail”, nor does it define the term “manipulative practices,” according to his order.
Rather, the court’s role is to interpret the statute as it is written, Hawkins wrote, and when a term is undefined, the court must give the term its “plain and ordinary meaning.”
In determining what constitutes manipulative practices, Hawkins said the court holds that there must be evidence of intentional conduct to deceive or defraud in an unfair manner. And he said the court did not find that the defendants’ actions rose to the level of “intentional conduct that had the intent to deceive or defraud in an unfair manner.”
Hawkins also determined that the firefighters’ group did not meet its burden of providing factual evidence that actions by Macellum/Ancora rose to the level of “manipulative” as required under the statute.
“Specifically, this Court finds that Defendants’ actions of approaching Big Lots regarding its concerns as shareholders, releasing open letters to fellow Big Lots’ shareholders regarding corporate strategy, nominating new individuals for election to the Board of Directors, filing a preliminary proxy statement, and engaging in settlement discussions with Big Lots constitutes shareholder activism, and this Court is hesitant to stifle that by labeling those practices as ‘manipulative,’” the judge wrote.
Hawkins also said it’s clearly questionable whether actions by Macellum/Ancora equated to being “a proposal to acquire control” of Big Lots.
“I am happy with the result,” said Phillip Goldstein, a co-founder and principal of Bulldog Investors who last month told Financial Regulation News that he thought the case should be dismissed. “Obviously, there could be an appeal but it’s satisfying to get a well deserved victory under our belt.”
While not involved in the case, Goldstein and other experts say that under the definition of greenmailing, there was no such action taking place in this case because Macellum/Ancora did not attempt to take control of Big Lots, and Big Lots did not buy shares from Macellum/Ancora at a premium above market price.
Rather, Macellum/Ancora submitted mostly independent director nominees for shareholder consideration and all of their transactions occurred on the open market.
Goldstein said the case involved “a plain vanilla proxy contest” in which the defendants’ goal was to persuade management to sell and lease back some of its properties, which they thought would help Big Lots’ financial position.
“As anyone familiar with securities law knows, greenmail occurs when a corporation buys the shares of a ‘greenmailer’ at a premium to the market price to avert a takeover threat,” Goldstein said in February. “As far as I know, that did not occur here, and no one has alleged that the defendants ever proposed to sell their shares to Big Lots.”