M&A Litigation in Delaware

Trulia

Chancellor Andre G. Bouchard's recent In re Trulia Shareholder Litigation, C.A. No. 10020-CB, decision is the latest, and most definitive, pronouncement that disclosure-only settlements with broad releases are unlikely to be approved in Delaware. After Trulia , settlements reached on the basis of additional disclosures will only be approved if the disclosures “address a plainly material misrepresentation or omission,” and the releases granted in connection with the settlement are limited to disclosure claims and other breach of fiduciary duty claims concerning the sale process that have been investigated sufficiently.

So what's next? First, we may see a drop in Delaware of the kind of reflexive M&A challenges filed in the immediate wake of an announced deal that had until recently been common in the state.

Second, while the overall number of M&A cases may drop, we may see an increased shift in this kind of litigation to jurisdictions outside Delaware, where courts may be more willing to approve disclosure-only settlements. The same study backs up this trend, finding a 10% drop between 2014 and 2015 in the percentage of cases with a Delaware connection that resulted in lawsuits filed in Delaware. Another factor that may impact this trend is whether Delaware companies will continue to adopt (or revoke) forum selection clauses that push M&A litigation to Delaware. Given that companies and their directors can no longer rely on a speedy resolution of fiduciary duty litigation arising out of mergers in Delaware, directors of Delaware corporations will likely give careful thought to the utility of these forum selection bylaws.

Third, M&A litigation certainly is not going away, despite these decisions. But what may change is the manner in which these cases are litigated. For example, we may see a spike in cases in which companies proactively make additional disclosures in response to alleged proxy deficiencies, with stockholder plaintiffs then dismissing their lawsuits and their lawyers seeking a mootness fee. Bouchard anticipated this development in Trulia, noting that one benefit of this approach is that “defendants are incentivized to oppose fee requests they view as excessive,” creating an adversarial process that facilitates the court's evaluation of the materiality of the supplemental disclosures. Moreover, we may see an increase in litigation that proceeds after the closing of the transaction ' which would likely mean suits that are more heavily litigated and expensive than the typical litigation resolved through a disclosure-only settlement. Vice Chancellor John Noble's recent post-closing decision in Doppelt v. Windstream, C.A. No. 10629-VCN (Del. Ch. Feb. 5, 2016), in which he denied the defendants' motion to dismiss disclosure claims relating to a spin-off transaction, is one example of the type of litigation that may increase.

Whatever the result of these recent decisions, they demonstrate once again that the Delaware Court of Chancery remains at the forefront of corporate law and M&A litigation.

Brian M. Lutz is a partner in the San Francisco office of Gibson, Dunn & Crutcher. Vivek Gopalan is a litigation associate. This article also appeared in Delaware Business Court Insider, an ALM sibling publication of this newsletter.