According to a press release dated April 15, 2006, the U.S. District Court for the District of Delaware dismissed a proposed securities fraud class action suit, ruling that the complaint failed to allege the element of economic loss causation as required by § 14(a) of the Securities Exchange Act of 1934. In a proposed class action, Rick Hartman, as a shareholder of Pathmark Stores Inc., sued Pathmark and its officers and directors for violations of § § 14(a) and 20(a) of the Exchange Act.
The complaint charges that Pathmark and is board of directors provided materially misleading information to shareholders in connection with a Proxy Solicitation seeking shareholder approval of an investment in Pathmark by Yucaipa Partners, LLC. The proxy solicitation was misleading because it failed to inform investors of an alternative cash-out transaction, through which all Pathmark shareholders would receive $8.75 per share, that had been presented to Pathmark's Board of Directors on June 1. This alternative offer represented a greater value than the Yucaipa Transaction which the Board was recommending. The Complaint also alleges that the defendants breached their fiduciary duties in negotiating with Yucaipa by continuing to recommend that shareholders approve the Yucaipa Transaction even after the alternative offer had been made.