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Joseph M. McLaughlin and Shannon K. McGovern. Courtesy photos

“Mootness fees” to plaintiffs’ counsel after a voluntary dismissal have become a standard feature of deal litigation resolved before a stockholder motion to enjoin a transaction based on alleged proxy disclosure deficiencies is decided. After the sudden but widespread adoption in Delaware and elsewhere of sharp limitations on “disclosure-only” settlements—where the parties agree to settle solely on the basis of supplemental proxy disclosures in exchange for comprehensive class-wide releases of all claims relating to the transaction (followed by class counsel’s fee application for contributing to the disclosure benefit)—mootness fees have replaced disclosure-only settlements as the ordinary method of resolving disclosure-focused deal litigation. This column explains the important differences between these two approaches to resolving deal litigation. It also examines a recent federal decision currently on appeal to the Seventh Circuit in which the court, unlike Delaware courts, when addressing a negotiated mootness fee decided to “exercise its inherent powers to police potential abuse of the judicial process—and abuse of the class mechanism in particular—and require plaintiffs’ counsel to demonstrate that the disclosures for which they claim credit” were “plainly material” to stockholders—a standard Delaware reserves for disclosure-only class-wide settlements. House v. Akorn., 2018 WL 4579781, at *3 (N.D. Ill. Sept. 25, 2018). The continuing migration of deal litigation from Delaware to other fora (usually federal court to avoid Delaware forum selection clauses) makes Akorn an important read.

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