January 25, 2016

Disclosure-Only Settlements: In re Trulia As Death Knell?

Last week, I blogged about a recent study that shows disclosure-only settlements dropping dramatically in the last quarter of 2015 as the Delaware judiciary delivered some hard-hitting decisions in that area. Now we have In re Trulia, CA 10020-CB (Del. Ch.; 1/22/16), in which Chancellor Bouchard refused to approve a disclosure-only settlement with a decision that possibly delivers a coup de grace to these types of settlements absent a showing that the additional disclosures are clearly material.

Chancellor Bouchard’s decision makes it clear that the Delaware Chancery Court will no longer approve settlements involving the release of broad claims in exchange for additional disclosures of dubious quality. These settlements have involved an exchange of near-meaningless changes to the “Background,” “Interests of Certain Persons in the Merger” and “Opinion of Financial Advisor” sections of a merger proxy or Schedule 14D-9 – and/or merely cosmetic changes to the buyer’s deal protections in a merger agreement – in return for a defendant’s agreement to support the plaintiff’s fee application.

So In re Trulia is a potential game-changer – as it comes on the heels Aeroflex, Riverbed, TW Telecom, etc. – as it may further diminish the leverage that strike suit firms have been able to wield for years. It appears to be the most potent condemnation of marginally-pled claims – and it should refocus deal litigation on those relatively rare circumstances where there is demonstrable evidence of disloyalty, bad faith and disqualifying conflicts of interest.

Notably, Chancellor Bouchard recommends the adoption – on a clear day – of exclusive forum bylaws to the extent the decision fuels an increase in deal litigation outside of Delaware. And he calls on the courts of “sister states” to appreciate the judicial waste inherent in litigation designed only to line the pockets of plaintiff firms while providing no real value to shareholders. Thanks to Greenberg Traurig’s Cliff Neimeth for his insights!

Also see this blog by Steve Quinlivan – and we’re posting memos in our “Disclosure” Practice Area