June 14, 2019

Mootness Fees: How to Succeed in M&A Litigation Without Really Trying

This recent D&O Diary blog discusses a new study about merger litigation’s latest quick buck gambit – the pursuit of mootness fees in federal courts.  This excerpt says that as M&A litigation migrated from Delaware to federal court post-Trulia, the way cases were resolved changed significantly:

Along with the shift of merger objection lawsuits from state to federal court was a shift in the way that these kinds of cases are resolved. The typical pattern in the past, in which the case was settled for an agreement by the defendant company to make additional deal disclosures in exchange for a full release and an agreement to pay plaintiffs’ attorneys fees, has changed to one in which the plaintiffs’ voluntarily dismiss the lawsuit in exchange for the payment of a mootness fee.

Prior to 2016 very few cases involved the payment of a mootness fee; in 2018, not only were 100% of all merger objection cases involving completed deals dismissed, but 63% involved the payment to the plaintiffs’ counsel of a mootness fee.

The study suggests that the rise of mootness fees has enabled a small group of plaintiffs’ lawyers to impose a toll on M&A transactions “without an adversarial process, meaningful judicial oversight or an evaluation of whether the complaint even states a colorable claim.”

These fees typically aren’t huge – they’ve recently ranged between $50 – $100K – but it’s a volume business that is estimated to bring in nearly $25 million a year at the low end. Since that kind of easy money can be had, it’s not surprising that the study claims that the handful of members of the plaintiffs’ bar who are bringing M&A cases much prefer extracting these fees to actually litigating their claims.

John Jenkins