In a series of recent cases, the Delaware Court of Chancery has criticized disclosure-only settlements of lawsuits challenging mergers, in which shareholders receive minimal disclosure enhancements in exchange for a broad (“intergalactic”) release of future claims against the company, and plaintiffs’ lawyers receive significant fees. Most notably, in mid-September, Vice Chancellor Sam Glasscock, in a Memorandum Opinion issued in connection with the proposed settlement in In Re Riverbed Technologies Inc., warned that the Court of Chancery is changing course and will no longer approve disclosure-only settlements where the court does not find a rational relationship among the alleged harm, the release, and the fee.
With nearly all merger transactions valued in excess of $100 million attracting lawsuits, this development could have a significant impact on M&A-related shareholder litigation. The Court of Chancery is seeking to reduce the volume of meritless litigation by making it harder for plaintiffs’ firms to secure a nearly certain fee in exchange for relatively painless settlements. One consequence, however, is that Delaware companies involved in acquisition transactions will face greater obstacles in their efforts to obtain a broad release of future claims in exchange for those same painless settlements.