Ruling that the value of certain supplemental transaction disclosures in the context of a $15 billion merger was “nil,” the Seventh Circuit Court of Appeals recently overturned an award of attorneys’ fees to plaintiffs’ counsel in the context of merger litigation. On August 10, 2016, in the case In Re: Walgreen Co. Stockholder Litigation, case number 15-3799, writing for the 7th Circuit, Judge Posner, following a recent trend of decisions denying requests for attorneys’ fees to attorneys representing shareholders challenging a merger, adopted Delaware’s Trulia standard for approval of such settlements.
The case In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016) decided by the Delaware Chancery Court held in part that “[t]o be more specific, practitioners should expect that disclosure settlements are likely to be met with continued disfavor in the future unless the supplemental disclosures address a plainly material misrepresentation or omission….”
In Walgreen, the plaintiffs’ counsel successfully forced the defendant company to furnish supplemental disclosures regarding the proposed transaction. The Court in analyzing the supplemental disclosures in the context of the transaction and information that had been previously disclosed to the stockholders determined that the additional disclosures were largely worthless. As a result, the 7th Circuit held that the additional disclosures did not meet the clearer standard that the disclosures be “plainly material” and the Court held that the settlement award to plaintiffs’ counsel should be rejected by the lower court.
Based on the recent trend of courts to reject payment of fee only settlements in the context of merger litigation, evidence suggests that the filing of so called “strike suits” has begun to decrease.
For more information please contact Joe Marrow.
By: Joe Marrow
Continuing a recent trend, a Delaware Chancery Court judge recently denied a request for an award of attorneys’ fees and expenses in connection with the Keurig Green Mountain Inc. shareholder litigation. On July 22, 2016, in the case In Re: Keurig Green Mountain Inc. Shareholders Litigation, case number 11815, Chancellor Andre G. Bouchard considered a petition seeking an award of attorneys’ fees and expenses to the attorneys representing shareholders that had challenged the acquisition of Keurig.
On behalf of the shareholders, the lawyers had questioned the deal disclosures that had been made by Keurig in its proxy statement. As a result of the action, Keurig made certain supplemental disclosures to the shareholders. The attorneys representing the shareholders then sought an award of $300,000 of fees and expenses from Keurig. Keurig’s attorneys opposed the petition arguing that the supplement disclosures merely confirmed information that had previously been provided in the proxy statement. Chancellor Bouchard agreed and denied the petition on the basis that disclosures in question were not beneficial to the shareholders. Chancellor Bouchard has taken a strong position against granting significant fee awards in the context of disclosure-only settlements in shareholder litigation.
For more information, please contact corporate attorney Joe Marrow.
By: Mark J. Tarallo
In a decision issued on January 22, 2016, in In re Trulia, Inc. Stockholder Litig., (“Trulia”), the Delaware Chancery Court struck another blow against “disclosure-only” settlements. In Trulia, Chancellor Andre Bouchard rejected a proposed disclosure-only settlement and in a strongly worded opinion stated that “the Court’s historical predisposition toward approving disclosure settlements needs to be reexamined,” and that the Chancery Court would be “increasingly vigilant in scrutinizing the “give” and the “get” of such settlements to ensure that they are genuinely fair and reasonable to the absent class members.”
Disclosure-only settlements are common in litigation arising out of M&A transactions. As Chancellor Bouchard noted:
“It has become the most common method for quickly resolving stockholder lawsuits that are filed routinely in response to the announcement of virtually every transaction involving the acquisition of a public corporation. In essence, Trulia agreed to supplement the proxy materials disseminated to its stockholders before they voted on the proposed transaction to include some additional information that theoretically would allow the stockholders to be better informed in exercising their franchise rights. In exchange, plaintiffs dropped their motion to preliminarily enjoin the transaction and agreed to provide a release of claims on behalf of a proposed class of Trulia’s stockholders. If approved, the settlement will not provide Trulia stockholders with any economic benefits. The only money that would change hands is the payment of a fee to plaintiffs’ counsel.”
In rejecting the settlement, Chancellor Bouchard ruled that “from the perspective of Trulia’s stockholders, the “get” in the form of the Supplemental Disclosures does not provide adequate consideration to warrant the “give” of providing a release of claims to defendants and their affiliates, in the form submitted or otherwise.” The Trulia ruling may signal the end of such settlements in Delaware. The full text of the opinion can be found here.
For more information, please contact Mark Tarallo.