July 18, 2023
Del. Chancery Pours Cold Water on Mootness Fees for Disclosure Claims
Mootness fees have become a popular alternative for plaintiffs asserting M&A disclosure claims post-Trulia. The traditional pattern for these cases has been for plaintiffs to file disclosure claims in federal court and then agree to a settlement involving the payment of a mootness fee after corrective disclosure has been made. Some federal courts have become very dubious of this practice & the Chancery Court’s recent decision in Anderson v. Magellan Health, (Del. Ch.; 7/23) indicates that Delaware remains pretty frosty toward mootness fees for disclosure claims as well.
In that case, the plaintiff sought a $1.1 million mootness fee award as part of the settlement of a disclosure claim. Chancellor McCormick rejected that request and awarded a mootness fee of only $75,000. This excerpt from Francis Pileggi’s blog on the case explains the policy considerations behind the Chancellor’s decision:
For the avoidance of doubt, the Court underscored that Delaware public policy does not encourage plaintiffs’ counsel to: “pursue weak disclosure claims with the expectation that defendants would rationally issue supplemental disclosures and pay a modest mootness fee as a cheaper alternative to defending the litigation.” Slip op. at 22.
Delaware courts have not had much opportunity to clarify Delaware policy and law on mootness fees based on supplemental disclosures because in the wake of Trulia, the “… deal-litigation diaspora spread mainly to federal courts, where plaintiffs’ attorneys repackaged their claims for breach of the fiduciary duty of disclosure as federal securities claims.” Id.
After careful reasoning and citation to scholarship on the topic and the case law developments, the Chancellor clarified that: ” At a minimum, mootness fees should be granted for the issuance of supplemental disclosures only where the additional information was legally required.” Slip op. at 23.
Going forward, the Court gave notice that it: “… will award mootness fees based on supplemental disclosures only when the information is material”. Slip op. at 24.
– John Jenkins