Common stockholders filed two class action lawsuits against AMC Entertainment Holdings, Inc. (AMC) and its board of directors (the “Board”). The lawsuits asserted fiduciary duty and statutory claims under section 242(b) of the Delaware General Corporation Law. The lawsuits were later consolidated. The stockholders challenge proposed amendments to the Third Amended and Restated Certificate of Incorporation of AMC, which was proposed in connection with a special meeting of the AMC stockholders that was scheduled to be held on March 14, 2023. 

Plaintiffs alleged the Board sought to “neutralize and circumvent” the voting rights of the common stockholders by: (i) issuing the company’s outstanding AMC Preferred Equity Units (“APE”); (ii) entering into a Deposit Agreement to “supercharge the voting power of the Preferred Stock relative to the Class A common stock” via the proportional voting provision; (iii) selling hundreds of millions of APEs to new investors; (iv) buying votes for the Proposals through AMC’s deal with Antara; and (v) “structur[ing] the Proposals to include a conversion of APEs into Class A shares on a one-for-one basis, which will result in a significant transfer of value from the Class A stockholders to the APE holders, to financially incentivize APE holders to vote for the Proposals.”

Shortly after the filing and consolidation of the lawsuits, the parties “stipulated to expedited proceedings and a status quo order by which the defendants agreed not to amend … [AMC’s] certificate of incorporation as a result of any vote at the Company’s March 14 special meeting, pending the Court’s ruling on the plaintiffs’ forthcoming preliminary injunction motion”, which was scheduled to be heard on April 27. 

On April 3, AMC announced that the parties reached a proposed settlement, where the parties agreed that if the Court approves lifting the status quo order, AMC would (i) “increase the authorized number of shares of Common Stock,” (ii) “convert the Company’s outstanding … [APEs] into shares of Common Stock,” and (iii) “effect a 1-to-10 reverse split of AMC equity.”  AMC pre-conversion common stockholders would receive “one additional share of Common Stock for every seven-and-one-half (7.5) shares of Common Stock held as of the issuance.” The issue for the Court was that the unopposed motion to lift the status quo order contemplated performance of the settlement before Court could conduct a settlement hearing, including stockholders being notified of the settlement and having the opportunity to object.     

In denying the motion to lift the status quo order, the Court held that the party seeking a modification or vacatur of a status quo order bears the burden to show good cause why the order should be modified or vacated, and the decision is ultimately left to the discretion of the Court. The Court further noted how it has cautioned parties against performing settlement obligations, even partially, prior to a class action settlement hearing, because doing so prevents the Court from meeting its obligation to oversee class action settlements. The Court ultimately found that there was no good cause to lift the status quo order in this case.    

This case is also noteworthy given the numerous objections received by the Court from AMC stockholders, notwithstanding that notice of the settlement has not even been formally provided and a settlement hearing has not been scheduled.