Ex-Denny’s Stockholders Angry : Let Them Eat Burgers, Lawyers in Suit Propose
When some owners of Denny’s restaurant stock thought they had eaten losses in a merger last year, they filed a class-action lawsuit. Now some are angry at having to swallow the proposed settlement of their suit.
Lawyers for both sides have proposed that the 4,000 former stockholders be issued scrip worth 20 cents a share and redeemable for meals at the 1,000 Denny’s restaurants in 43 states over the next three years.
Some disgruntled former stockholders are not thrilled with the prospect of hamburgers instead of cash. They were paid $43 a share for their holdings when the merger occurred, but feel they should be getting more money.
One couple, who held 8,500 shares, “literally must gorge themselves on $3,400 (worth) of Denny’s food over the next three years” to “reap the benefits” of the settlement, wrote an administrator of a pension fund, which held shares for its members.
The proposal “appears to be more punishment than award to a presumptively injured party,” he wrote the court in objecting to the proposed settlement, which Los Angeles Superior Court Judge Norman R. Dowds is expected to rule on today.
Another stockholder, H. W. Vogelmann of Jericho, Vt., who held 200 shares before the merger, wrote the court that such a settlement wouldn’t benefit him at all.
“Since there are NO Dennys’ restaurants in northern Vermont where I live, the scrip is worthless to me. The proposed terms of the settlement are clearly discriminatory as they essentially deny compensation to those persons less fortunate to live within reasonable distance of a restaurant where they can be used.”
Should Dowds rule against the proposal, the class-action members--whose suit alleged that they should have gotten more than the $43 a share they received when the public company merged and went private last year--won’t get anything more.
That won’t bother one former stockholder, who wrote that the $5 in scrip he would get for his 25 shares would be “an amount too insignificant to be bothered with.”
But George Godlin of Alta Loma wrote that he found the proposal “callous and cavalier . . . ludicrous and incredible.” He said he thought $60 a share would have been a fair price and that he felt defrauded of a substantial sum.
“This is an outrage,” Godlin said “and gives rise to the suspicion that the litigation and settlement were both initiated as a sham to preempt other litigation. I wish to be excluded . . . to pursue my own claim for justice.”
Also opting out were Hans K. Lemcke and his wife of Olympia, Wash.
“We are over 80 years old and can’t get to Denny’s to make use of the scrip, nor do we have anyone we could sell the scrip to,” they wrote. “Cash, however, would be most welcome.”
Wrote C. Steven Short of Los Angeles: “It’s apparent to me that the purpose of this case is simply to provide a group of attorneys with a questionable sum of revenue, namely the filing of this case and the fees resulting from it. . . . I hope that enough other former stockholders file this report so as to make this case invalid.”
The proposed settlement seems like a good idea to the attorneys who filed the suit. Jack Corinblit and Marc M. Seltzer of Los Angeles, who came up with the idea of the scrip, explained it this way:
After initiating the case, they examined thousands of documents and concluded that $43 a share was probably a fair price for the stock, and that an even lower price could be justified.
“The risk of loss (of the case) was so overwhelming,” Corinblit said Wednesday. “We could get nothing for the stockholders, or try to get an in-kind settlement. . . . We knew of cases where in-kind settlements had been reached.” He cited cases in which discount coupons had been issued to class members in suits involving airlines and food processors.
“We don’t consider this an insubstantial result. It is a very substantial result and can benefit the class.”
Attorney Melvyn H. Wald of Munger, Tolles & Olson, which represents Denny’s, agreed that, considering the risks, the proposed settlement is not a bad deal.
“We had said very consistently that there would be no cash settlement,” he said Wednesday. And the $43 purchase price for the stock “was higher than Denny’s stock had ever traded at.” The stock price was in the low $40s for several days before the merger.
All of the attorneys agreed that the scrip should be fully assignable. Recipients could use it, sell it or give it away to someone else or a charity.
“I know of one who is going to give all of it to charity,” Wald said.
As for the lawyers for the former stockholders, Corinblit & Seltzer in Los Angeles and a firm in New York City, no Denny’s meals for them. They are asking Dowds to approve $390,000 in fees and expenses to be paid by Denny’s--in cash, not scrip.
