September 5, 2017

M&A Litigation: A Mid-Year Review

This Cleary memo reviews M&A litigation during the first half of what’s been a very eventful 2017. In addition to addressing developments under Corwin, MFW & appraisal actions, the memo discusses how plaintiffs have responded to Trulia & the decline of disclosure-only settlements. Here’s an excerpt:

Plaintiffs have responded to Trulia in several ways. First, some plaintiffs have attempted to file suits in other fora that they hope will be more receptive to approving disclosure-only settlements. Certain state courts have indicated that they will adopt Trulia’s enhanced scrutiny of such settlements, but the response has been mixed. These attempts have been hampered by exclusive forum bylaws, which have been widely adopted by corporations and require challenges to mergers and acquisitions to be brought in a designated forum. Although some observers speculated that certain corporations may be willing to waive an exclusive forum bylaw in the hope of securing a quick, disclosure-only settlement in another forum, early research has found no evidence of such willingness thus far.

Second, some plaintiffs have attempted to file claims in federal court under the Exchange Act. Consequently, the number of securities class actions alleging federal disclosure violations skyrocketed in 2016, and this trend continued in the first half of 2017. Exclusive forum bylaws cannot require the filing of these claims in the Court of Chancery because the claims are based on federal law.

The memo notes that based on how federal courts have responded to Trulia, they may turn out not be any more receptive to disclosure-only settlements than Delaware courts – and that these developments have encouraged plaintiffs to agree to quickly dismiss their individual claims in exchange for supplemental disclosures & the payment of a small mootness fee to plaintiffs’ counsel.

John Jenkins