Earlier this month, I blogged about the rise of mootness fees in federal court M&A litigation. So far, they’ve been easy money for plaintiffs, but a federal judge’s decision to blow up a mootness fee settlement in a case that arose out of last year’s aborted Akorn/Fresenius merger may signal a change in judges’ willingness to sanction these deals. Here’s the intro from this recent article by Allison Frankel:
U.S. District Judge Thomas Durkin of Chicago has thrown down the gauntlet: In a ruling issued Monday, he said it’s time to end the “racket” of “worthless” M&A shareholder litigation. Judge Durkin abrogated a settlement between Akorn and individual shareholders and ordered plaintiffs’ lawyers to return their $322,500 mootness fee to the company, concluding that their purported class action complaints should have been dismissed at the outset of litigation.
The article adds that Judge Durkin pointed to the 7th Circuit’s 2016 Walgreen decision in support of the position that class actions that don’t provide substantive benefits to shareholders should be “dismissed out of hand.”
The study I cited in my earlier blog said that the rise of the mootness fee phenomenon was largely attributable to federal judges not providing the kind of oversight to mootness fee settlements with individual plaintiffs that they provide to class settlements. That didn’t happen here – and that’s because a shareholder watchdog made sure the proposed settlement didn’t escape the judge’s notice:
The decision is vindication for class action watchdog Ted Frank of the Hamilton Lincoln Law Institute. Frank, an Akorn shareholder, tried to intervene in the litigation in 2017, when plaintiffs’ lawyers disclosed their $322,500 mootness fee in a stipulation asking Judge Durkin to sign an order closing cases voluntarily dismissed by individual shareholders.
Judge Durkin denied the motion to intervene but allowed Frank, represented by his colleague Frank Bednarz, to file an amicus brief arguing, among other things, that the 7th Circuit’s Walgreen decision instructs federal judges to scrutinize all prospective class actions, not just cases that end with classwide settlements.
– John Jenkins