June 12, 2012

Delaware Applies Topping Bid Concept to Contested Settlement

John Grossbauer of Potter Anderson notes: Recently, Delaware Vice Chancellor Laster delivered this opinion in Forsythe v. ESC Fund Mgmt. Co. (U.S.) I, L.P. In the opinion concerning a proposed derivative settlement, the Court of Chancery determined that it would enter a final order approving the settlement and the plaintiffs’ fee award in sixty days unless the objectors to the settlement “make the equivalent of a topping bid.” In order to forestall the Court’s approval of the settlement, the objectors must post a secured bond or letter of credit for the benefit of the nominal defendant, CIBC Employee Private Equity Fund (U.S.) I, LP (the “Co-Invest Fund”), for the full amount of the settlement consideration – valued at $13.25 million – and apply to take over the litigation. Should the objectors pursue the derivative claims and ultimately recover less than the settlement consideration, the Co-Invest Fund will have the right to execute on the posted security to collect any shortfall between the settlement consideration and the ultimate recovery.