Merger objection litigation

As I have detailed in prior posts, in the latest variant in the merger objection litigation game, the plaintiffs agree to dismiss their lawsuit after the defendant companies make additional disclosures and agree to pay the plaintiffs’ counsel a “mootness fee.” The absence of any court involvement in the case resolution makes this an attractive alternative for the plaintiffs’ lawyers. However, at least one court recently intervened in order to upset this cozy game.

As discussed here, in a blistering June 2019 opinion, Northern District of Illinois Judge Thomas Durkin, exercising what he called his “inherent authority,” acted to “abrogate” the parties’ settlement in the litigation arising out of the acquisition of Akorn , Inc. by Frensenius Kabi AG, and ordered the plaintiffs’ lawyers to return to Akorn their $322,000 mootness fee, ruling that the additional disclosures to which the company agreed were “worthless to shareholders” and that the underlying lawsuits should have been “dismissed out of hand.”

Now, in the brief to the Seventh Circuit filed on their appeal of Judge Durkin’s order, the plaintiffs argue that Judge Durkin’s order was “void” because Judge Durkin lacked jurisdiction, had “no authority to continue” after the parties’ settlement, and that he “drastically overstepped the bounds of [the court’s] inherent authority.”  The plaintiffs brief sets the stage for what may prove to be a very interesting appellate decision.
Continue Reading Plaintiffs Argue District Court Lacked Authority to Set Aside Their Mootness Fee Settlement

In a prior post, I noted recent academic research detailing the rise of mootness fee dismissals in federal court merger objection litigation. In these merger-related lawsuits, the plaintiffs agree to dismiss their suit based on the defendants’ agreement to make changes to the merger documents – thus, making the merger suit moot – and to pay the plaintiffs’ attorneys a mootness fee. An October 4, 2019 Law 360 article entitled “Plaintiffs Firms Follow Easy Merger Money to Federal Court” (here, subscription required) takes a look at the small group of plaintiffs’ law firms that the most active in filings these kinds of cases and obtaining mootness fees, in a process that at least one federal district judge has characterized as no better than a “racket.”
Continue Reading Plaintiffs’ Lawyers, Merger Objection Litigation, and Mootness Fees

As discussed in prior posts, after the Delaware courts evinced their distaste for the type of disclosure-only settlements that had until then typically resolved merger objection lawsuits, the plaintiffs’ lawyers changed their game. They began filing their merger objection lawsuits in federal court rather than in state court, and then rather than settling the cases, agreed to dismiss their cases in exchange for supplemental proxy disclosures, after which the plaintiffs would seek to recover a so-called “mootness fee.” At least one federal judge recently questioned this “racket,” but the question remained whether more courts would take steps to scrutinize this process and discourage what has become nothing more than the plaintiffs’ lawyers’ extraction of a “go away” payment.

In a positive sign suggesting that court may indeed become more involved in policing this process, a District of Delaware judge recently rejected merger objection lawsuit plaintiffs’ mootness fee petition on the ground that the plaintiffs failed to carry their burden of showing that the supplemental disclosures produced a substantial benefit for the acquired company’s shareholders.
Continue Reading Delaware Federal Court Rejects Merger Objection Plaintiffs’ Mootness Fee Request

In a recent post, I detailed the latest variant in the merger objection litigation game, in which the plaintiffs’ agree to dismiss their lawsuit in exchange for the defendants’ agreement to make additional disclosures and pay the plaintiffs’ counsel a mootness fee. The absence of any court involvement in this process makes this an appealing business model for the plaintiffs’ counsel. It also makes it difficult for anyone to challenge the procedure, reducing the likelihood of unwanted judicial scrutiny.

However, Northern District of Illinois Judge Thomas M. Durkin, exercising his “inherent authority” and acting at the urging of an objecting shareholder, has “abrogated” the settlement of the litigation arising out of the acquisition of Akorn , Inc. by Frensenius Kabi AG, and ordered the plaintiffs’ lawyers to return to Akorn their $322,000  mootness fee, ruling that the additional disclosures to which the company agreed were “worthless to shareholders” and that the underlying lawsuits should have been “dismissed out of hand.” This welcome development could possibly be the first step into driving a stake in the heart of the merger objection litigation “racket.” Judge Durkin’s June 24, 2019 order can be found here.
Continue Reading Is This the Beginning of the End of the Merger Objection Lawsuit Mootness Fee Racket?

One of the most significant phenomena in the world of corporate and securities litigation has been the rise of merger objection litigation. As has been well-documented, merger objection litigation reached the point in recent years that virtually every public company merger transaction drew at least one lawsuit. The circumstances surrounding merger objection litigation began to change after the Delaware courts evinced their displeasure with this kind of litigation in a series of rulings that culminated in the 2016 decision in Trulia, in which the court rejected the kind of disclosure only settlement that had characterized the resolution of these kinds of cases. Since then, the merger objection lawsuits have shifted to federal courts. Moreover, these cases, now in federal court, increasingly are not settled; rather, they are dismissed in exchange for the defendants’ willingness to pay the plaintiffs’ counsel a so-called “mootness fee.”

In a May 29, 2019 paper entitled “Mootness Fees” (here), Matthew Cain and Steven Davidoff Solomon of UC Berkley Law School, Jill Fisch of Penn Law School, and Randall Thomas of Vanderbilt Law School take a look at the recent rise of mootness fee dismissals in merger objection litigation. Their paper documents that the rise of mootness fee settlements has turned merger objection litigation into a process for a small number of lower tier plaintiffs’ firms to in effect extract a toll from companies involved in M&A transactions, largely without court scrutiny or even minimal disclosure requirements. The authors suggest a number of procedural mechanisms to try to provide some scrutiny  and transparency over these kinds of settlements.
Continue Reading Mootness Fees: The Latest in the Merger Objection Litigation Phenomenon

The pace of federal court securities class action filings during 2018 was “the highest since the aftermath of the 2000 dot-com crash,” according to a recent report from NERA Economic Consulting. Not only were the filings during the year at significantly elevated levels, but the filings “accelerated over the second half of the year, with the fourth quarter being one of the busiest on record.” As noteworthy as the filing trends are, the elevated filing pace “masked fundamental changes in the filing characteristics,” including the shift toward significantly higher amounts of investor losses. Average and median settlement levels also jumped significantly during the year, compared to the year prior. The January 29, 2019 report, entitled “Recent Trends in Securities Class Action Litigation: 2018 Full-Year Review” can be found here. NERA Economic Consulting’s January 29, 2019 press release about the report can be found here. My analysis of the 2018 federal court securities class action lawsuit filings can be found here.
Continue Reading NERA Economic Consulting: Securities Suit Filings at Highest Level in Years

On January 4, 2019, the U.S. Supreme Court granted cert in a case that will determine what a plaintiff must plead in order to state a claim for false statements or omissions in connection with a tender offer under Section 14(e) of the Securities Exchange Act of 1934. The Ninth Circuit held in the case at issue that a plaintiff needs only plead negligence, differing on the issue from at least five different federal circuit courts that had previously held that in order to establish a claim a plaintiff must plead that the defendants acted with scienter. The U.S. Supreme Court’s ruling in the case could have a significant impact on merger objection lawsuits filed in connection with tender offers. The Supreme Court’s January 4, 2019 order in Emulex Corporation v. Varjabedien can be found here.
Continue Reading Supreme Court to Consider Whether Negligence Sufficient to State Section 14(e) Tender Offer Claims

As I have previously noted on this blog, merger objection litigation imposes significant costs on the defendant companies and their insurers. In the following guest post, Patrick Gallagher of the integrated communications and investor relations firm Dix & Eaton takes a look at recent developments in the merger objection litigation arena. I would like to thank the author for allowing me to publish the article as a guest post on this site. It was originally published on the Dix & Eaton Blog. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Pat’s guest post follows below.
Continue Reading Guest Post: Merger Objection Lawsuits Getting Tougher for Plaintiffs’ Attorneys

The percentage of M&A transactions valued over $100 million attracting at least one merger objection lawsuit continued to decline in 2017, according to a recent Cornerstone Research study. The July 18, 2018 study, entitled “Shareholder Litigation Involving Acquisitions of Public Companies: Review of 2017 M&A Litigation” (here), also reports that the average number of lawsuits filed per M&A deal and the percentage of M&A deal litigation voluntarily dismissed declined in 2017, as well. Cornerstone Research’s July 18, 2018 press release about the report can be found here.
Continue Reading Percentage of M&A Deals Attracting Litigation Continued to Decline in 2017