February 13, 2019

Disclosure-Only Settlements: NJ Chancery Endorses “Trulia-Lite”

Delaware’s hard line on disclosure-only settlements adopted in In re Trulia has been slow to catch on in other jurisdictions, with only a few adopting the standard so far. But now this Gibbons blog says that we may be able to add New Jersey to the list – sort of:

In the first published New Jersey state court opinion addressing the Trulia standard, the Chancery Division in Strougo v. Ocean Shore Holding Co. followed Trulia in holding that disclosure-only settlements are to be subject to “more exacting scrutiny,” but it is doubtful that the Chancery Division scrutinized the settlement to the degree envisioned by Chancellor Bouchard in Trulia.

According to the Chancery Division in Strougo, when a court is asked to approve a disclosure-only settlement, the court should determine whether the supplemental disclosure was “material,” meaning that “there is a substantial likelihood that a reasonable stockholder would consider it important in deciding how to vote.” Trulia requires more: it requires that the supplemental disclosure be “plainly material,” meaning that “it should not be a close call that the supplemental information is material.”

Consistent with its Trulia-lite approach, the Court said that supplemental disclosures about the deal’s fairness opinions were material enough to support a settlement – even though the Trulia court concluded that supplemental disclosures like these rarely add value for shareholders.

John Jenkins