Redfin stockholder asks court to block vote on Rocket merger

In a response filed by Redfin and its board of directors, including Robert Bass, Julie Bornstein, Kerry D. Chandler, Glenn Kelman, Austin Ligon, David H Lissy, Brad Singer, James Slavet and Selina Tobaccowala, they ask the court to deny Morano’s motion for expedited discovery and proceedings, claiming that these measures are “unwarranted” and barred under the Private Securities Litigation Reform Act.

Initially, the plaintiff requested that the defendants respond to the motion within just three-business days, something Redfin said the plaintiff had offered no justification for.

Redfin’s response calls the suit “the sort of baseless stockholder litigation that is reflexively filed after the announcement of a public company merger, no matter how lucrative and beneficial the transaction is to stockholders and regardless of how forthright and thorough the related disclosures.”

The Redfin defendants argue that Morano’s fiduciary duty claim is “meritless,” and that the discovery requested by the plaintiff would burden Redfin and the defendants. Additionally, Redfin claims that unlike what Morano alleges, he did not act swiftly, instead waited two months after the acquisition was announced to file his complaint. 

Rocket also filed a response, in which it wrote that the plaintiff’s allegation that the proxy statement is misleading is meritless, as the only things the statement does not include is “several discrete (and trivial) pieces of information — none of which pertain to Rocket.” 

“Plaintiff’s counsel knows that parties to high-stakes M&A transactions like the Merger are highly incentivized to settle even frivolous claims rather than entertain costly discovery or oppose an injunction request that might jeopardize or delay a premium transaction,” the response states. “As Plaintiff freely admits, the Proxy discloses the lending relationship. No part of that disclosure could be misleading, much less materially misleading.”

Like the Redfin defendants, Rocket also alleges that Morano waited until the last minute to file the suit, which it claims he did “in the hopes of leveraging such threats so that Defendants will simply choose to supplement the Proxy with the insignificant information he requests rather than oppose his request to enjoin the Redfin stockholder vote.”

Due to his delay in bringing the suit, Rocket claims that Morano cannot obtain injunctive relief, and that the delay in filing the suit “unquestionably prejudices [the] defendants, who have dedicated extensive time and resources to the complex Merger that Plaintiff now seeks to jeopardize.” 

For his part, Morano is now asking the court to enjoin Redfin from holding its stockholder vote until Redfin filed supplemental disclosures with the SEC.

In his motion for a preliminary injunction, Morano claims that  the Private Securities Litigation Reform Act “prohibits proxies from omitting material facts that render statements therein misleading.”

Despite the defendants’ assertion, Morano claims that the proxy  “contains statements rendered misleading by omissions of material fact in violation of federal and Delaware law. If not cured in advance of the Stockholder Vote [on June 4], these material disclosure violations will deprive Redfin stockholders of their important right to cast fully informed votes with respect to the Merger, and thereby cause irreparable harm.”

Some of the things Morano claims the Proxy does not address include whether or not Rocket has paid compensation to Goldman Sachs for financial advisory and underwriting services. 

“The sums paid by Rocket to Goldman Sachs under the Revolvers since March 9, 2023, as well as the magnitude of Goldman Sachs’ present lending commitment to Rocket, is material information,” the motion claims. “To enable Redfin stockholders to evaluate the magnitude of the potential conflict posed to Goldman Sachs by its existing lending relationship with Rocket, Defendants must file supplemental disclosures with the SEC adequately in advance of the Stockholder Vote disclosing (i) the sums paid by Rocket to Goldman Sachs under the Revolvers since March 9, 2023, and (ii) the amount of Goldman Sachs’ present lending commitment to Rocket.”

Morano claims the preliminary injunction is warranted as without it he and other stockholders will suffer irreparable harm. 

The court has yet to rule on the preliminary injunction, but despite the defendants’ argument, Judge John H. Chun did grant Morano’s motion for expedited discovery and proceedings. The defendants have until Friday to respond to Morano’s motion for preliminary injunction and the plaintiff must file his reply to this response by Tuesday, May 27.