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M&A Litigation in Delaware
Long accepted in Delaware (and in courts throughout the country), “disclosure-only” settlements were common in lawsuits brought by stockholders of a corporation sold in an M&A transaction. These lawsuits alleged that directors of the seller breached their fiduciary duties in connection with the sale price and process, and through allegedly deficient proxy materials provided to stockholders in connection with their vote on the deal. In disclosure-only settlements, the seller would agree to provide additional disclosures in advance of the stockholder vote on the transaction. As part of these settlements, all defendants typically would obtain the benefit of a broad release of liability of all claims and potential claims (not limited to disclosure claims), and the plaintiff lawyers would typically obtain a fee for obtaining a benefit for the putative class of stockholders in the form of the additional disclosures (whether helpful to stockholders or not). Many M&A participants came to view these fees as a customary “deal tax” required to be paid by the buyer as part of the transaction price.
Criticism of disclosure-only settlements from the Chancery Court has been building for years, beginning perhaps with then-Chancellor Leo E. Strine Jr.'s rejection of a proposed disclosure-only settlement in the In re Transatlantic Holdings Shareholders Litigation , C.A. 6574-CS (Feb. 28, 2013), case in 2013. More recently, decisions in Acevedo v. Aeroflex Holding, C.A. No. 9730-VCL, In re Riverbed Technology Stockholders Litigation, C.A. No. 10484-VCG (Del. Ch. Sept. 17, 2015), In re Susser Holdings Shareholder Litigation, C.A. No. 9613-VCG (Del. Ch. Sept. 15, 2015), In re Aruba Networks Stockholder Litigation, C.A. No. 10765-VCL (Transcript Ruling, Oct. 9, 2015), and In re Silicon Image Stockholders Litigation, C.A. No. 10601-VCG, reflected the Chancery Court's deep skepticism of disclosure-only settlements.
While acknowledging that Delaware law had for years permitted this very practice, these decisions questioned the propriety of allowing counsel for a single stockholder or group of stockholder plaintiffs ' who, with the promise of a significant fee award, are incentivized to reach a prompt settlement with minimal litigation expense ' to bargain away the right of absent class members to bring any claim relating to the deal. These decisions also questioned the benefit to the putative class.
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