With limited exceptions, the Court of Chancery must approve the settlement of derivative actions to ensure that a representative plaintiff has fairly obtained a just outcome for the class he or she represents. In performing this review, the court must "exercise its business judgment to determine whether the settlement is fair and reasonable in light of the factual and legal circumstances of the case," as the court held in In re Resorts International Shareholders Litigation Appeals , 570 A.2d 259, 266 (Del. 1991). Exercising business judgment - a task Delaware courts recognize is best left to corporate fiduciaries - presents unique challenges for the court, which is necessarily limited in its review by the record the parties before it develop. Vice Chancellor J. Travis Laster's February 6 decision in Forsythe v. ESC Fund Management , C.A. No. 1091-VCL (Del. Ch. Feb. 6, 2013), highlights this difficulty and provides useful guidance for litigants hoping to obtain court approval of (or to challenge) good, but not great, derivative settlements.
'Judicial Business Judgment' and the Art of Evaluating Derivative Settlements
Delaware Business Court Insider
February 13, 2013
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