In recent years, one of the curses of the corporate and securities litigation world has been the ubiquitous filing of merger objection lawsuits in connection with proposed M&A transactions. When a deal is announced, plaintiffs’ lawyers almost always file one or more of these suits in which they seek additional proxy disclosures. After the defendant company agrees to make additional disclosures, the plaintiffs’ lawyers dismiss the suits in exchange for the payment of a so-called “mootness fee.” It is a process that the well-respected jurist Richard Posner famously described as “no better than a racket.”

Now, in a recent decision written by Judge Frank Easterbrook, the Seventh Circuit has identified additional tools and ammunition that companies and other objectors can use to try to fight these kinds of lawsuits —  which, the appellate court specially recognized, have no purpose other than to transfer money from companies to plaintiffs’ lawyers.

A copy of the appellate court’s April 15, 2024, opinion can be found here. Alison Frankel April 16, 2024, post about the decision on her On the Case blog can be found here.

The plaintiffs in the underlying lawsuits sued Akorn and its board of directors in connection with a proposed merger, seeking additional disclosure regarding the transaction. After Akorn revised its proxy statement, plaintiffs dismissed their lawsuits in exchange for a mootness fee. Ted Frank, an Akorn shareholder, moved to intervene and object to the fee.

Although the district court did not allow Frank to intervene, the court did exercise its “inherent authority” to review the proposed settlement and fee payment. Among other things, the district court concluded that the additional disclosures were “not plainly material” and that the additional disclosures were “worthless to shareholders.” Yet, he noted, the plaintiffs’ attorneys were “rewarded” for suggesting “immaterial changes to the proxy statement.”  The company paid the fees “to avoid the nuisance of ultimately frivolous lawsuit” disrupting the transaction. The district court abrogated the settlement and ordered the plaintiffs’ attorneys to return their fees. Frank appealed the court’s ruling declining to allow him to intervene.

In a succinct April 15, 2024, opinion written for a two-judge panel (the third panel judge having died following oral argument), the Seventh Circuit vacated the district court’s orders, remanded the case for further proceedings in light of the appellate court’s ruling, and directed the district court to permit Frank to intervene.

In reaching its decision, Judge Easterbrook specifically reviewed the history of this type of merger objection litigation, noting that as a result of unfavorable case law, the plaintiffs’ lawyers that bring this type of litigation have in recent years moved their cases from state court to federal court, in part in the hopes of evading judicial review of the agreed-upon fees.

Judge Easterbrook summarized these kinds of cases by saying that “The upshot: money moves from corporate treasuries to plaintiffs’ lawyers; the investors get nothing, yet the payment diminishes (though only a little) the market price of each share.”

Perhaps most importantly, Judge Easterbrook highlighted that the PSLRA gives district court judges a tool specifically intended to address abusive litigation. The specific provision to which Easterbrook referred is the section of the PSLRA which requires district court judges to make specific findings with respect to the parties’ respective positions under Rule 11 of the Federal Rules of Civil Procedure (which prohibits the filing of a lawsuit for improper purposes, including needlessly increasing the cost of litigation). The PSLRA provision, Judge Easterbrook noted, is mandatory.

The appellate court remanded the case to the district court first to allow Frank to intervene, next to conduct the inquiry required under the PSLRA provision and Rule 11, and lastly to determine what sanction if any would be appropriate under Rule 11.


It is significant that a respected jurist like Judge Easterbook has stepped forward to spell out the problem that these kinds of lawsuit present. They are a tax on the system that exists solely for the purpose of enriching the plaintiffs’ lawyers. We can hope that Judge Easterbrook’s opinion will encourage more judges to scrutinize the payment of fees in the settlements of these kinds of cases.

However, it is worth noting that it has been nearly eight years since Judge Posner called these kinds of cases “nothing better than a racket,” yet these kinds of lawsuits still continue to be routinely and regularly filed.

One of the reasons that these cases still proliferate is that the plaintiffs’ lawyers have changed their game. They no longer file these lawsuits as class action lawsuits; these lawsuits are filed every bit as often as ever, but now they are almost all filed as individual lawsuits rather than as class action suits. (Indeed, as often as not these days, the plaintiffs’ lawyers don’t even bother with a lawsuit, they just file a demand letter, extract meaningless additional disclosures, and extract a “mootness” fee.)

The plaintiffs’ lawyers filing these suits file them as individual actions rather than as class actions precisely because they hope to evade the kind of judicial scrutiny that can be involved in class action litigation. Indeed, the mandatory Rule 11 review to which Judge Easterbrook referred in his opinion is specifically addressed to class action lawsuits; the mandatory review the court cited as required in its opinion is not by its terms required for individual actions. Of course, Rule 11 is still applicable even to the individual lawsuits; however, the PSLRA mandatory scrutiny requirement is not applicable.

I fear that these kinds of lawsuits will always be with us unless more companies refuse to play along. However, companies find it expedient just to pay the plaintiffs’ lawyers to go away, rather than to fight, which is of course exactly what the plaintiff’s lawyers hope will happen. The price to make them go away is now much lower than it has been in the past, so the costs are lower, but any recovery in any amount is still objectionable.

It has been my privilege in recent years to be able to travel to other countries, where I often attend conferences of attorneys and insurance professionals who work outside the U.S. It is a regular occurrence at these conferences that one of the speakers or of the attendees rails against the abusive U.S.  litigation system. From time to time, I feel compelled to defend the U.S. litigation system. But one thing I could never defend is the existence of these merger objection lawsuits. They are the very embodiment of the use of the litigation system for improper purposes.

While I hope Judge Easterbrook’s opinion might contribute to the elimination of these cases, I fear it will not.