February 16, 2018

Disclosure-Only Settlements: Is New York Warming to Trulia?

About this time last year, we blogged about a New York appellate court’s refusal to adopt Delaware’s hard line approach to disclosure-only settlements.  However, this Paul Weiss memo says a recent trial court decision suggests that the Empire State’s position may be evolving.  Here’s the intro:

The New York Supreme Court, New York County recently declined to approve what the court described as a “peppercorn and a fee” disclosure-only settlement in a public company M&A litigation, noting that while until recently most courts would routinely approve such settlements, “that is no longer the case.”

Applying New York’s Gordon standard for approving such settlements—which only requires “some benefit for the shareholders” and is less exacting than standards applied in many other jurisdictions, most notably Delaware’s “plainly material” standard under In re Trulia—the court’s decision in City Trading Fund v. Nye demonstrates that even under the New York approach, disclosure-only settlements will not be approved simply as a matter of course, as the court will still analyze the benefits of the added disclosures under the circumstances.

The opinion also advocates for the adoption in New York of Delaware’s stricter Trulia standard, perhaps indicating a position among some New York jurists that appellate courts should revisit the issue. In any event, the decision adds to a nationwide trend of courts acting to discourage the plaintiffs’ bar from bringing frivolous claims in public company M&A situations.

While we’ve recently blogged about contentions that plaintiffs are fleeing Delaware as a venue in part because of Trulia, Delaware’s approach appears to be gaining traction in some important jurisdictions. In addition to the potential evolution in New York’s approach, this Pillsbury Winthrop memo says that at least one California court has decided to toe the Trulia line on disclosure-only settlements.

John Jenkins