Bass, Berry & Sims attorney Britt Latham co-authored an article for The New York Law Journal discussing the future of "disclosure-only" settlements in M&A class actions following the Delaware Court of Chancery's rejection of several such settlements in 2015. Britt co-authored the article with James P. Smith III, a partner and chair of the securities litigation practice at Winston & Strawn.
As discussed in the article, the question going forward is whether these developments in Delaware will divert to other states the routine rush of litigation that typically follows a public company merger announcement. "Disclosure-only settlements have become 'the most common method for quickly resolving stockholder lawsuits that are filed routinely in response to the announcement of virtually every transaction involving the acquisition of a public corporation,'" the authors explain, citing the opinion in Trulia, Inc. Stockholder Litigation. These disclosure settlements are sometimes referred to as a "deal tax" – an inevitable annuity paid to plaintiffs' lawyers – that has simply become part of the "cost of doing business" in getting a public deal to closing. These settlements also provide "deal insurance," since settling on the basis of additional pre-vote proxy disclosures (1) provides deal certainty by avoiding the risk of an injunction of the shareholder vote on the proposed merger and (2) eliminates the small risk of future post-closing damages litigation. Thus, they have some benefit for both plaintiffs and defendants. Delaware has begun rejecting these settlements, and because it is the country's leading forum for merger objection litigation, companies should watch closely as other states may follow Delaware's precedent.
The full article, "The Future of Disclosure-Only Settlements," was published by The New York Law Journal on May 23, 2016, and is available online or the PDF below.