Morris James, Where Is Delaware Corporate Litigation Going?

To begin with, it is clearly a good thing for Delaware to reject disclosure-only settlements when little value has been generated for the stockholders. Trulia is a good decision given the current legal landscape. Under it, clearly meritorious disclosure settlements still will be approved. Other cases can proceed on the merits to a pre-close injunction hearing, and may be resolved through voluntary supplemental disclosures that can benefit stockholders, or through post-close litigation where damages may be pursued. Moreover, Corwin will not affect post-close litigation where the challenged transaction is among the most scrutinized under Delaware law: deals involving a conflicted, controlling stockholder. Nor will Corwin affect post-close litigation in third-party deals where the stockholder vote was uninformed, or coerced. E.g., In re Saba Software, Inc. S’holder Litig., Cons. C.A. No. 10697-VCS (Del. Ch. Mar. 31, 2017).

Matthew D. Cain et al., The Shifting Tides of Merger Litigation (2017)

In 2015, Delaware made several important changes to its laws concerning merger litigation. These changes, which were made in response to a perception that levels of merger litigation were too high and that a substantial proportion of merger cases were not providing value, raised the bar, making it more difficult for plaintiffs to win a lawsuit challenging a merger and more difficult for plaintiffs’ counsel to collect a fee award.

We study what has happened in the courts in response to these changes. We find that the initial effect of the changes has been to decrease the volume of merger litigation, to increase the number of cases that are dismissed, and to reduce the size of attorneys’ fee awards. At the same time, we document an adaptive response by the plaintiffs’ bar in which cases are being filed in other state courts or in federal court in an effort to escape the application of the new rules.

This responsive adaptation offers important lessons about the entrepreneurial nature of merger litigation and the limited ability of the courts to reduce the potential for litigation abuse. In particular, we find that plaintiffs’ attorneys respond rationally to these changes by shifting their filing patterns, and that defendants respond in kind. We argue, however, that more expansive efforts to shut down merger litigation, such as through the use of fee-shifting bylaws, are premature and create too great a risk of foreclosing beneficial litigation. We also examine Delaware’s dilemma in maintaining a balance between the rights of managers and shareholders in this area.

Sheppard Mullin, Delaware Supreme Court Confirms that Dilution Claims Typically Are Derivative and Are Extinguished After a Merger

Stockholder claims alleging wrongful dilution are typically considered to be derivative in nature. Several decisions out of Delaware, however, have created exceptions to this general rule allowing stockholders to sue directly (rather than derivatively on behalf of the corporation) where, for example, a controlling stockholder authorizes a “disloyal expropriation” which reduces the economic value and voting power of the non-conflicted stockholders. See, e.g., Gentile v. Rossette, 906 A.2d 91, 100 (Del. 2006); Gatz v. Ponsoldt, 925 A.2d 1265 (Del. 2007); Feldman v. Cutaia, 951 A.2d. 727 (Del. 2008). In El Paso Pipeline GP Company, L.L.C. v. Brinckerhoff, No. 103, 2016, 2016 Del. LEXIS 653 (Del. Dec. 20, 2016), the Delaware Supreme Court declined to add to these exceptions and reaffirmed the general rule that dilution claims must be brought derivatively. As a result, a derivative plaintiff losses his or her standing to pursue a dilution claim if the entity is acquired through a merger.

Why Merger Cases Settle

Wilson Sonsiniが書いた記事について,Kevin M. LaCroixがコメントしています。

組織再編に関する訴訟について,日本でも興味が高まっているようなので,参考になると思います。

Clark suggests two reasons the cases settle. The first is that the litigation is time=consuming and expensive. Most targets of this type of litigation just “want someone to make it go away,” and the settlement allows the defendants to avoid the irksome and expensive litigation activity. Based on these considerations, the decision for most defendants in this type of litigation is “pretty clear” because “settling makes a lot of sense.”

But, according to Clark, there is a second reason these cases settle. Clark’s observations about this additional reason is the more interesting part of Clark’s analysis. According to Clark, another reason the cases settle is that post-merger litigation can drag on interminably because it can be difficult to resolve. The difficulty of resolving the litigation post-close provides another incentive for the defendants to try to resolve the case prior to the transaction closing.

via WSG&R, The D&O Diary