The Delaware Chancery court has scrutinized the practice of reflexively filing class action lawsuits challenging public company mergers, and then settling in exchange for additional disclosures and payment of the plaintiffs’ counsel’s fees. The January 22 In re Trulia, Inc. Stockholder Litigation calls for a paradigm shift in the way these shareholder suits are litigated. Merging corporations should expect fewer lawsuits, but more uncertainty in litigations that are filed. Here are the key takeaways that deal participants should keep in mind.
A series of recent rulings from the Delaware Chancery Court have sharply criticized, and may have ultimately curtailed, the common but controversial practice of disclosure-only settlements in the context of public company merger litigation. Despite these recent rulings, shareholder plaintiffs’ counsel are likely to continue to sue on deal announcements, so Delaware’s discontent with disclosure-only settlements begs the question of whether plaintiffs will avail themselves of other jurisdictions.