August 25, 2016

Disclosure-Only Settlements: Mootness Fees

Here’s news from this alert from Cleary Gottlieb:

As a result of courts’ continued disfavor of disclosure-only settlements, more defendants have decided to issue supplemental disclosures that would unilaterally moot any disclosure claims brought by plaintiffs in merger challenges. In those instances, plaintiffs’ counsel may be entitled to seek a mootness fee for the “benefit” of supplemental disclosures that they obtained on behalf of stockholders.

Although the Court in Trulia held that supplemental disclosures must be “plainly material” in order to support a settlement and class wide release, Delaware Vice Chancellor Glasscock recently held that there is a lower standard in the mootness fee context. In that context, a merely “helpful” disclosure that “provides some benefit to stockholders” may support a mootness fee award, even if the disclosure is not material. In re Xoom Corp. Stockholders Litigation, C.A. No. 11263-VCG (Del. Ch. Aug. 4, 2016).

Vice Chancellor Glasscock explained that because there was no release of claims other than to the named plaintiffs, “there is no ‘give’ to balance against the disclosure ‘get’; the benefit is the ‘get’ of the disclosures, with no waiver of class rights to be set against that benefit.” Id. Former Vice Chancellor Noble also has held that Trulia “does not require a ‘plainly material’ inquiry in the mootness fee award context.” LAMPERS v. Black, C.A. No. 9410-VCN (Del. Ch. Feb. 19, 2016) (noting that “mootness dismissals do not pose the same sorts of systemic concerns as court-approved disclosure settlements”).

Nonetheless, the Court of Chancery will continue to carefully review applications for mootness fees to ensure that they do not simply replace disclosure-only settlements. For example, Vice Chancellor Glasscock determined in Xoom that plaintiffs’ requested mootness fee of $275,000 was not justified for the disclosures obtained, and reduced the award to only $50,000.

Furthermore, Chancellor Bouchard recently denied an application for a mootness fee award where the Court determined that the supplemental disclosures did not obtain any benefit for the stockholders, because the supplemental disclosures only confirmed things that had been previously disclosed. In re Keurig Green Mountain, Inc. Stockholder Litigation, C.A. No. 11815-CB (consol.), transcript (Del. Ch. July 22, 2016).

Broc Romanek