AMC Shareholder Case Judge Refutes Special Master Bias Concerns

A lawyer deputized to assist in shareholder litigation over preferred equity units issued by AMC Entertainment Holdings Inc. doesn’t appear to have any conflicts of interest, a Delaware judge said Wednesday.

Vice Chancellor Morgan T. Zurn largely denied a bid to recuse the attorney—Corinne Elise Amato of Prickett, Jones & Elliott PA—from her role as special master. Amato is reviewing a tidal wave of letters from AMC retail investors writing to oppose a legal settlement allegedly worth more than $100 million.

The deal, disclosed April 3, would resolve AMC’s blockbuster dispute with a pension fund and two other shareholders who challenged its plan to recapitalize by converting its APE preferred units into common stock. The move would significantly dilute the amateur investors whose “meme stock” rally rescued the company from the brink of a pandemic-related bankruptcy.

Zurn, writing for Delaware’s Chancery Court, said the risk of retaliation by Hollywood elites against Amato’s brother, who allegedly works as a film editor, is too remote to justify removing her from the case. “I can envision no set of circumstances” in which her recommendations “could so anger Hollywood’s entertainment industry that it would blacklist” him, the judge said.

Nor does Amato appear to have any conflicts of interest stemming from her past work as co-counsel with one of the lawyers for the investors leading the litigation, Zurn found. But the judge said she would wait to formally reject that argument until Amato submits an affidavit stating that she’s unbiased.

Complex Corporate Engineering

The ruling—in a four-page letter, rather than a full court opinion—tentatively rejected a pair of motions by one of the retail investors, Alex Mathew, who filed it without an attorney. The motions didn’t fully back up the assertions about Amato’s brother or say where the information came from—they simply flagged film industry work by someone sharing a last name with her—but Zurn said she had taken the claims at face value.

The investor seeking to have Amato recused is one of more than 100 who have written to the court about the settlement, overwhelmingly to oppose it. Many of the letters allege fraud or market manipulation, while others seek to opt out of the deal or request a criminal investigation. Several of the retail shareholders are also trying to officially enter the case.

The settlement—worth more than $100 million at current trading prices, according to recent court filings—would resolve claims that the APE conversion reflects a complex corporate engineering scheme aimed at unfairly sidelining ordinary shareholders. AMC would get to move ahead with its recapitalization plan, while each owner of common stock would receive an additional share for every 7.5 they hold.

Each APE unit represents 1/100th of a preferred share theoretically worth 100 class A shares, so they’re supposed to be equivalent to common stock. But they’ve tended to trade at a steep discount due to uncertainty about whether the conversion would ever be authorized. The gap has fluctuated drastically in recent weeks based on developments in the court case.

Zurn’s decision Wednesday came less than a week after AMC opened a new front in the broader dispute, suing 17 insurance companies over claims they’re breaching its liability policies by refusing to cover the shareholder case.

Bernstein Litowitz Berger & Grossmann LLP, Grant & Eisenhofer PA, Fields Kupka & Shukurov LLP, and Saxena White PA are counsel for the investors leading the litigation. AMC is represented by Berger Harris LLP and Cohen Ziffer Frenchman & McKenna LLP in the insurance case, along with Richards, Layton & Finger PA and Weil, Gotshal & Manges LLP in the shareholder case.

The case is In re AMC Ent. Holdings Inc. Stockholder Litig., Del. Ch., No. 2023-0215, 5/10/23.