Thanks to its lawyers at Simpson Thacher & Bartlett and Jones Day, Sirius XM looks to have finally closed the book on the 2007 merger between its predecessor companies, Sirius Satellite Radio and XM Satellite Radio. On Wednesday, U.S. District Judge Jed Rakoff dismissed the second of two shareholder derivative suits that accused Sirius and XM of lying to federal antitrust regulators in order to gain approval of the deal. Saying that he would issue a full opinion at a later date, Rakoff handed down a brief order granting Sirius MX’s motion to dismiss the suit in its entirety.
According to the shareholder plaintiffs, the companies promised regulators that their subcription rates would not rise after the merger, in fact when rate hikes were always part of the plan. Additionally, the shareholders accused Sirius XM chief executive officer Mel Karmazin of breaching his fiduciary duty when he went with a refinancing package for the merger from John Malone of Liberty Media Corp. instead of what they claimed was a better financing proposal from Charles Ergen. The plaintiffs alleged that Karmazin chose Malone’s offer because of personal animus towards Ergen.
The shareholders were seeking damages, disgorgement of profits, and benefits obtained by the Sirius XM directors, as well as the removal of Karmazin from the board. They were represented by Spector Roseman Kodroff & Willis and Kahn Swick & Foti.
Last November, Simpson and Jones Day convinced Judge Rakoff to dismiss another shareholder derivative suit against Sirius XM filed in the Southern District of New York. Both complaints were filed in response to a $180 million settlement of civil antitrust claims that Sirius XM engaged in anticompetitive behavior in raising its rates. Ultimately the company agreed not to raise its rates until 2012.
In the latest suit, Sirius XM maintained in its motion to dismiss that it had not misled federal regulators, and that while it increased some subscription rates, it did so only after the Federal Communications Commission’s price caps expired and the agency declined to renew them. As for Karmazin choosing to go with Malone’s financing offer, Sirius XM argued that no evidence showed that there was anything untoward about that decision, and pointed out that the shareholders’ attorneys did not depose Ergen. (Ironically, Malone filed a petition with the FCC on Thursday to take control of the Sirius XM board over Karmazin’s opposition.)
For their part, the shareholders maintained that there were plenty of facts in dispute to survive a motion to dismiss. Additionally, they noted in their response to Sirius’s motion to dismiss that predecessor company Sirius prepared a 2007 budget in advance of the merger that planned for $70 million in additional revenue based on increases in subscriber fees. Sirius XM argued in its motion to dismiss that the budget was never implemented.
