Shareholders Derivative Litigation

Delaware Court of Chancery

The fact that these days virtually every public company M&A transaction draws at least one merger objection lawsuit has provoked concern from many quarters. As I noted in a prior post, it recently became clear that among those concerned are the judges on the Delaware Court of Chancery. Based on developments last week, including in particular Vice Chancellor Sam Glasscock III’s September 17, 2015 opinion in the Riverbed Technology merger objection lawsuit (here), the days when merger objection suits in Delaware’s courts may be resolved through a disclosure-only settlement in which plaintiffs’ counsel gets their fees paid and the defendants get an “intergalactic” claim release may be over. As Alison Frankel put it in a September 18, 2015 post on her On the Case blog (here), last week’s Delaware Chancery Court developments may represent “a turning point in M&A shareholder litigation in Delaware Chancery Court.”
Continue Reading Delaware: Time’s Up for Disclosure-Only Settlements in Merger Objection Suits?

del1One of the great curses of the corporate litigation environment in recent years has been the proliferation of merger objection suits, the incidence of which has gotten to the point that now just about every large merger deal draws at least one lawsuit, and sometimes several. However, if recent developments in the Delaware Chancery Court are any indication, the courts are as appalled by this seemingly undifferentiated mass of litigation as are the parties to the transactions. Two recent decisions may suggest that the Delaware courts, at least, are no longer willing simply to accept the standard “disclosure only” settlements that typically resolve these kinds of cases, which in turn may mean that the cases could become less attractive to the plaintiffs’ lawyers that bring these cases.
Continue Reading The Beginning of the End of the Merger Objection Lawsuit Curse?

Cohen photoAs I noted in a recent post (here), on June 11, 2015, the Delaware legislature passed legislation prohibiting fee-shifting bylaws for Delaware stock corporations. On June 24, 2015, Delaware’s governor signed the statute into law, as discussed here. As I noted in my blog post about the legislation, though the statute has been passed, a number of questions remain about fee-shifting bylaws, including in particular what the legislation’s impact might be for bylaws purporting to shift fees in connection with federal securities litigation. As discussed here, according to Columbia Law School Professor John Coffee, as a result of the statute’s wording, there may be unanswered questions whether the statute prohibits bylaws shifting fees in connection with securities litigation.


In the following guest post, Neil J. Cohen, Publisher, Bank and Corporate Governance Law Reporter, takes the position that there may be arguments that the new legislation is broad enough to preclude bylaws that purport to shift fees in connection with federal securities litigation. (Please note that Neil wrote and submitted his article before the Governor has sighed the statute into law.) The “Note” at the beginning of the guest post is part of Neil’s article.


I would like to thank Neil for his willingness to publish his article on this site. I welcome guest post submissions from responsible authors on topics of interest to readers of this site. Please contact me directly if you would like to submit an article. Here is Neil’s guest post.


Note: The following article discusses a Delaware bill, passed by both the Senate and House, which prohibits a Board of Directors of a stock company from implementing fee-shifting provisions for “internal corporate claims.” The author asserts that securities fraud suits can fit within that category. The article is part of a Round Table on the Delaware legislation that includes Professors J. Robert Brown and John C. Coffee. The June, 2015 issue of the Bank and Corporate Governance Law Reporter containing the entire Round Table can be downloaded here.

The Governor of Delaware is expected to sign a bill, passed by the House and Senate, which prohibit fee-shifting provisions for “internal corporate claims”. The bill also contains a prohibition of bylaws or charter provisions that designate a forum other than Delaware as the exclusive forum. That provision would prevent corporations from choosing forums that allow fee-shifting provisions.

The legislators resisted a lobbing effort by the Chamber of Commerce’s Institute for Legal Reform to insert a provision expanding the Court of Chancery’s discretionary authority to shift to include cases that “plainly should not have been brought but that do not satisfy the extremely narrow ‘bad faith’ or ‘frivolousness’ exceptions”.

Assuming the Governor signs the bill, what is the outlook for fee-shifting provisions affecting securities fraud litigation?  Will plaintiffs file for a declaratory judgment in Chancery Court or in District Court to strike the fee-shifting provisions as facially invalid under the new Delaware law? If so, the specific questions are likely to be whether the general bylaw authority under Section 109 of the law allows such provisions and, if so, whether Section 115, dealing with “internal corporate claims,” exempts them. If they are not exempt plaintiffs will be forced to overcome a high standard of proof to demonstrate they are invalid as applied.  In the author’s opinion the best argument that the fee-shifting provisions are invalid is because they are exempt as “internal corporate claims” under Section 115 of the new law.
Continue Reading Guest Post: Does Delaware Legislation Cover Fee Shifting in Securities Cases?

delsealIn a late night session on June 11, 2015, the Delaware House of Representatives overwhelmingly passed S.B. 75, which prohibits Delaware stock corporations from adopting “loser pays” fee-shifting bylaws and which confirms that Delaware corporations may adopt bylaws designating Delaware courts as the exclusive forum for shareholder litigation. The bill, which previously passed the state’s

del1In a detailed May 4, 2015 opinion (here), Vice Chancellor Travis Laster of the Delaware Chancery Court extensively reviewed the rights of an insolvent company’s creditors to pursue derivative claims against the company’s directors. As Francis Pileggi put it in a May 6, 2015 post on his Delaware Corporate and Commercial Litigation blog

cornerstone reserach pdfAccording to the latest report from Cornerstone Research, during 2014, over 90 percent of M&A transactions resulting in at least one lawsuit, but each deal attracted a smaller average number of lawsuits and in fewer jurisdictions than in past years. The report, entitled “Shareholder Litigation Involving Acquisitions of Public Companies: Review of 2014 M&A Litigation”

gavelnewOne of the most distinctive corporate and securities litigation trend in recent years has been the surge in M&A-related litigation, with virtually every deal attracting at least one lawsuit. This trend continued again in 2014, according to a recently updated study from Matthew Cain, an economic fellow at the SEC, and University of California Berkeley law professor Steven Davidoff Solomon. As reflected their February 20, 2015 paper entitled “Takeover Litigation in 2014” (here), takeover litigation continued at a “steady state” and at an extremely high rate during 2014. Lawsuits were brought in 94.9% of takeovers in 2014 versus 39% in 2005. The 2014 figures are consistent with but slightly down from the filings in 97.3% of all takeovers in 2013.
Continue Reading Takeover Litigation Continued at Heightened Levels in 2014

filings piileIt is now well-established that pretty much every M&A deal attracts at least one lawsuit from a shareholder objecting to the transaction. According to research by Notre Dame business professor Matthew Cain and Ohio State law professor Steven Davidoff, 97.3% of all takeovers in 2013 with a value of over $100 million experienced at least

freeportThe parties to the Freeport-McMorRan Copper & Gold, Inc. Derivative Litigation have finalized an agreement to settle the consolidated litigation pending in the Delaware Chancery Court in exchange for a payment of $137.5 million and for the company’s agreement to adopt certain corporate governance reforms. The settlement represents the third largest derivative lawsuit settlement ever.