December 11, 2017

Disclosure Litigation: Life After Trulia

This Skadden memo surveys the state of M&A disclosure litigation nearly 2 years after the Delaware Supreme Court’s Trulia decision fundamentally altered Delaware’s approach to “disclosure only” settlements. Here’s an excerpt:

Disclosure-based settlements before the Court of Chancery are all but extinct. Litigation has not subsided in Delaware post-Trulia but has taken a different form. Instead of preclosing requests for injunctive relief, stockholder plaintiffs have focused instead on post-closing monetary damages and have increased their use of statutory relief, such as books and records and appraisal actions pursuant to 8 Del. C. §§ 220 and 262, to challenge transactions.

Some state and federal courts outside of Delaware have adopted and applied the reasoning in Trulia, but a number of disclosure-based settlements involving companies incorporated under different state laws have found favor in other state courts, with some courts distancing themselves from Trulia. Also, since Trulia, many stockholder plaintiffs appear to be avoiding filing their disclosure claims as state law breach of fiduciary duty claims, instead filing claims relating to a proposed transaction in federal courts pursuant to federal securities laws in order to avoid forum selection bylaws requiring internal corporate state law claims (such as breach of fiduciary duty claims) to be filed in Delaware, and likely in the hopes of extracting higher mootness fee awards with less scrutiny. This proliferation of securities claims has inspired plaintiffs’ attorneys to develop new tactics and craft some novel disclosure claims.

The memo reviews several post-Trulia cases arising in other states, and concludes that although disclosure-based settlements have obtained approval in some state courts outside of Delaware, federal securities law disclosure claims have largely replaced state law fiduciary duty disclosure claims in M&A litigation.

John Jenkins