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Rebecca Proctor, Et. Al v. Vishay Intertechnology

February 19, 2013

REBECCA PROCTOR, ET. AL., PLAINTIFFS AND APPELLANTS,
v.
VISHAY INTERTECHNOLOGY, INC., ET. AL., DEFENDANTS AND RESPONDENTS.



Trial Court: Santa Clara County Superior Court Trial Judge: Hon. James P. Kleinberg (Santa Clara County Super. Ct. No. 1-04-CV018977)

The opinion of the court was delivered by: Elia, Acting P. J.

CERTIFIED FOR PUBLICATION

In this appeal, a certified class of former minority shareholders of Siliconix, Inc., represented by Rebecca Proctor, seek review of a judgment dismissing their action against defendants Vishay Intertechnology, Inc. (Vishay); individuals and entities associated with Vishay; Siliconix; and Vishay's auditor, Ernst & Young, LLP (E &Y). Plaintiffs' lawsuit, which arose from a tender offer and merger effected by Vishay, eventually culminated in two causes of action: a shareholders' derivative claim and a class-action claim for quasi-appraisal. The superior court sustained defendants' demurrers to plaintiffs' fourth amended complaint without leave to amend, based on a prior adjudication of related claims in a Delaware court. Plaintiffs challenge the superior court's ruling, contending that the Delaware court's judgment is not entitled to full faith and credit because the Delaware court wrongly foreclosed litigation on their quasi-appraisal claim in California. Because we agree with the superior court's application of collateral estoppel to the Delaware court's adjudication of the issues, we must affirm the judgment dismissing the action.

Background

Vishay was a manufacturer of passive electronic components and semiconductor components. Plaintiffs were minority shareholders of Siliconix, a company that designed, manufactured, and marketed semiconductor products. (2001 WL 716787, Siliconix Shareholder Litigation 6/21/01, p. 1) Both companies were incorporated in Delaware; Vishay's headquarters were in Pennsylvania, while those of Siliconix were in Santa Clara County.

In 1998 Vishay acquired 80.4 percent of Siliconix from Daimler-Benz through its subsidiary, Vishay TEMIC Semiconductor Acquisition Holdings Corporation (Vishay TEMIC). In February 2001 Vishay made a cash tender offer for the remaining shares of Siliconix at $28.82 per share. That offer was rejected. On August 12, 2002, plaintiffs filed the instant action against Vishay, Vishay TEMIC, Siliconix, Vishay's chief executive officer, and E & Y. Their original complaint asserted (1) a shareholder derivative claim for breach of fiduciary duty and waste of corporate assets and (2) a class action for breach of fiduciary duty to two classes of minority shareholders. (See Proctor v. Vishay Intertechnology Inc. (9th Cir. 2009) 584 F.3d 1208, 1214.)

In January 2005 plaintiffs filed a first amended complaint, which contained more details of Vishay's alleged unlawful conduct. (Proctor v. Vishay Intertechnology Inc., supra, 584 F.3d 1208.) Two months later Vishay announced a tender offer for the remaining 19.6 percent of Siliconix stock. This time it proposed an exchange of 2.64 shares of Vishay common stock for each share of Siliconix stock, followed by a short-form merger. The announcement was challenged in several class-action shareholder suits against Vishay in the Delaware Court of Chancery. On April 18, 2005, these actions were consolidated in a first amended complaint in the Delaware court, essentially alleging that the tender offer was unfair and that Vishay had breached its fiduciary duties to the minority shareholders through inadequate disclosures and material omissions. Plaintiffs' counsel represented this pleading as having been "copied almost entirely" from the allegations of the January 2005 first amended complaint in the California action.

On April 20, 2005, the parties in the Delaware litigation reached "an agreement in principle, subject to additional discovery," consisting of Vishay's increase of the offered exchange to 3.075 Vishay shares for each Siliconix share. On April 28 they settled the action with a Memorandum of Understanding (MOU) reflecting the increased exchange ratio and supplemental disclosures to be made by Vishay.

When the tender offer expired on May 12, 2005, Vishay had obtained approval from enough shareholders to give it 95.5 percent of Siliconix common stock. Four days later it announced that it had accomplished the planned short-form merger, thus converting Siliconix into a wholly owned subsidiary of Vishay.

The final settlement agreement was filed with the Delaware Court of Chancery in September 2005. The document stated, "In consideration for the settlement and dismissal with prejudice of the Action and releases provided herein, (a) Vishay increased the exchange ratio in the Tender Offer and Short-Form Merger . . . to 3.075 Vishay shares for each share of Siliconix common stock and (b) Vishay has made supplemental disclosures (the 'Supplemental Disclosures') in connection with the Tender Offer and Short-Form Merger to address certain of the disclosure claims raised in the Action. The Supplemental Disclosures that were required by the terms and negotiations of the MOU were contained in an amended S-4 filed on April 25, 2005." The agreement further contained a broad release which expressly contemplated inclusion of "claims that Plaintiffs, on behalf of the Class, do not know or suspect to exist at the time of the release, which, if known, might have affected the Plaintiffs' decision to enter into this release. Plaintiffs and each member of the Class shall be deemed to waive any and all provisions, rights and benefits conferred by any law of the United States or any state or territory of the United States, or principle of common law, which governs or limits a person's release of unknown claims. Plaintiffs, on behalf of the Class, shall be deemed to relinquish, to the full extent permitted by law, the provisions, rights and benefits of § 1542 of the California Civil Code [and] any law . . . comparable or equivalent to California Civil Code § 1542. Plaintiffs, on behalf of the Class, acknowledge that members of the Class may discover facts in addition to or different from those that they now know or believe to be true with respect to the subject matter of this release, but that it is their intention, on behalf of the Class, to fully, finally and forever settle and release any and all claims released hereby, known or unknown, suspected or unsuspected, which now exist, or heretofore existed, or may hereafter exist, and without regard to the subsequent discovery or existence of such additional or different facts." Finally, the settlement specified that it would be governed and construed in accordance with Delaware law, and that any dispute arising out of the settlement would be litigated in the Delaware Chancery Court.

In its order scheduling the settlement approval hearing, the Chancery Court ordered Vishay to issue notice to all class members and warned, "Any person who fails to object in the manner described above shall be deemed to have waived the right to object (including any right of appeal) and shall be forever barred from raising such objection in this or any other action or proceeding, unless the Court orders otherwise."

In its settlement order on October 25, 2005, the Chancery Court found that adequate notice had been given to the class and all parties had had the opportunity to be heard. The court approved the settlement, including the Civil Code section 1542 waiver, finding the settlement "fair, reasonable and adequate and in the best interests of the Class." With the sole exceptions directed at claims to enforce settlement or for statutory appraisal, the court then released all pending and future claims related to the merger, reserved jurisdiction "over all matters relating to the administration and consummation of the Settlement," and dismissed the action with prejudice.*fn1 No party appealed from the October 25, 2005 Judgment.

Meanwhile, however, proceedings continued in California. Both the Vishay defendants and E & Y demurred to plaintiffs' first amended complaint, and in September 2005 the court sustained those demurrers with leave to amend. Plaintiffs filed their second amended complaint on November 21, 2005. This pleading alleged three causes of action: a shareholder derivative claim for breach of fiduciary duty and corporate waste; a class action claim of breach of fiduciary duty; and a new cause of action, quasi-appraisal of shares. This pleading again met with a demurrer, but this time the court overruled the demurrer of the Vishay defendants, finding it facially inadequate and legally insufficient in the face of allegations of "enrichment by the majority shareholder at the expense of the minority." The court commented that as the case developed, "perhaps on summary judgment or some other basis," the court might agree with Vishay's position, but the face of the current pleadings did not permit such an outcome. Only E & Y's demurrer was sustained, again with leave to amend, in the ensuing May 8, 2006 order.

Shortly thereafter, the Vishay defendants returned to the Delaware court, moving for a permanent injunction to enforce the final judgment and settlement. The motion asserted that the Delaware court had jurisdiction over the California plaintiffs, that the current California pleading (the second amended complaint) contained the same allegations as those resolved in the Delaware settlement and judgment, and that plaintiffs, having failed to object to that judgment, should be barred from relitigating the same issues in California. The Vishay defendants further argued that both causes of action ...


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