Merger objection litigation

One of the great curses on our legal system is the merger objection litigation phenomenon, pursuant to which nearly every proposed public company merger inevitably attracts at least one shareholder lawsuit in which the claimant alleges that the proxy statement disclosures regarding the proposed merger were inadequate. These lawsuits almost uniformly are settled after the defendant company voluntarily agrees to make supplemental disclosures, for which the plaintiff seeks a “mootness fee” (for supposedly obtaining the supplemental disclosures, making their lawsuit moot). When they have the chance, courts have uniformly disdained these kinds of shakedown; one prominent jurist described this recurring procedural sequence as “no better than a racket.” Yet plaintiffs’ counsel continue to file these suits and to get away with extracting fees, because the settlements and payment of attorneys’ fees so often evade judicial scrutiny.
Continue Reading Court Rejects Plaintiff’s Merger Objection Lawsuit “Mootness Fee” Petition

When Congress enacted the Private Securities Litigation Reform Act (PSLRA) in 1995, it aimed to address perceived abuses in securities class action litigation. Among the ills Congress sought to address was the prevalence in securities litigation at the time of “professional plaintiffs” — that is, repeat players who lent their names to lawyer-driven lawsuits without performing any oversight or monitoring of the litigation or of the lawyers. In the PSLRA, Congress put limits in place to try to curb these frequent filers. The reality is that these limits have not worked. As is well documented in a new paper from the U.S. Chamber of Commerce’s Institute for Legal Reform entitled “Frequent Filers Revisited: Professional Plaintiffs in Securities Class Actions,” repeat plaintiffs remain an unfortunate feature of securities litigation today, with many of the same ill effects Congress intended to remedy.

The paper, which was written by New York University Law School Professor Stephen Choi, University of Richmond Law School Professor Jessica Erikson, and University of Michigan Law School Professor Adam Pritchard, details the extent of the frequent filer problem in current securities litigation, and proposes a number of reforms to address the issue. The April 21, 2022 paper can be found here.
Continue Reading The Continuing Problem of Frequent Filers in Securities Litigation

As I have noted elsewhere on this site (for example here), the number of federal court merger objection class action lawsuits declined significantly during 2021. But as I and others have also noted, the decline in class actions had not necessarily meant less merger objection litigation overall. The merger objection suits are still being filed; they are just being filed as individual actions rather than as class actions. In the following article, Gregory Markel, Vincent Sama, Daphne Morduchowitz, Andrew Escobar, and Matthew Catalano of the Seyfarth Shaw law firm take a closer look at these changing merger objection lawsuit patterns and discuss the implications. I would like to thank the authors for allowing me to publish their article as a guest post on this site. 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. Here is the authors’ article.
Continue Reading Guest Post: Plaintiffs’ Abusive Tax on M&A Deals Changed Form But Continued in 2021

Federal court securities class action lawsuit filings declined in the first half of 2021 to the lowest semiannual levels in several years. Several factors contributed to this relative decline, most significantly the shift by plaintiffs’ lawyers toward filing federal court merger objection lawsuits as individual actions rather than as class actions. In addition, as discussed further below, other factors contributed to the relative decline. The filing levels in the year’s first six months puts the filing for the full year 2021 on pace for the lowest annual filing levels since 2015, after several intervening years in which filings were at historically high levels.
Continue Reading Federal Court Securities Lawsuit Filings Decline in Year’s First Half

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