Alison Frankel reports that:
There were two big takeaways from a new Cornerstone Research study of shareholder suits challenging big M&A announcements. First, Cornerstone confirmed what other analysts have previously reported: Plaintiffs’ lawyers are filing fewer cases in the wake of a 2015 crackdown on disclosure-only settlements by Delaware’s Chancery Court. The drop-off is dramatic (assuming that, like me, you accept the premise that the filing rate of shareholder M&A suits is the stuff of drama). At the 2013 peak of shareholder M&A litigation, plaintiffs’ lawyers sued to challenge 94 percent of announced deals valued at more than $100 million. In the first half of 2016, the rate was down to 64 percent – lower than we’ve seen since 2009.
Cornerstone’s second big finding is that when plaintiffs’ lawyers do sue over M&A transactions, they are much more likely to file cases outside of Delaware. In the first three quarters of 2015 – before Chancery Court judges began rejecting settlements that granted defendants broad releases in exchange for immaterial additional proxy disclosures – shareholders sued in Delaware in 61 percent of the M&A deals that prompted litigation. After the crackdown, only 26 percent of the deal challenges were filed in Delaware. Even when the acquired company is incorporated in Delaware, shareholders’ lawyers sued in Chancery Court in only 36 percent of all cases, compared to 74 percent in 2015.
As Frankel points out, this raises a key question:
In Delaware, plaintiffs’ lawyers know they can’t collect six-figure fees for bringing unwarranted deal challenges and defendants know they can’t buy global releases for the low, low price of a few hundred thousand bucks in fees to shareholders’ counsel. But will other judges countenance those agreements?
Fordham law professor Sean Griffith is worried that they will. As you may recall, Griffith is one of the academics who stirred the debate over disclosure-only settlements, co-authoring the 2015 paper, “Confronting the Peppercorn Settlement in Merger Litigation.” He then pledged to put his theories into practice. Griffith bought shares of recently acquired companies in order to object to disclosure-only settlements in shareholder class actions challenging the transactions. He made a splash last summer as an objector in a Delaware case involving Riverbed Technologies. (Griffith’s objection didn’t squelch the Riverbed settlement but provoked an opinion expressing skepticism about the viability of future disclosure-only settlements; the judge nevertheless awarded the professor’s lawyer only $10,000 in fees because he was worried about encouraging meritless objections.)
Now Griffith is busy warning courts outside of Delaware about disclosure-only settlements.
One answer is forum selection bylaws. I'm surprised they aren't almost universal by now.