Fake Merger Litigation Is Down, But Real Merger Litigation Is Up in the Delaware Court of Chancery

By Jay McMillan

Although filings of merger litigation in the Delaware Court of Chancery are down, at least four of the five judges on the Court have indicated that the Court is busier than ever, with more merger cases being scheduled for trial. This suggests that Chancellor Bouchard’s controversial opinion in the Trulia case (Del. Ch. Jan. 22, 2016), which bars pre-merger disclosure-only settlements unless the disclosures are “plainly material,” has (1) had the desired effect of discouraging plaintiffs from filing knee-jerk complaints upon the announcement of mergers aimed at early settlements for “a peppercorn and a fee” and (2) had the additional, salutary effect of promoting “real” litigation of meritorious post-closing cases that are capable at least of surviving a motion to dismiss and being scheduled for trial.

Vice Chancellor Montgomery-Reeves has commented that while there has been a dramatic decline in “fake litigation,” the Court is busier than ever with “real litigation.” In In re Good Technology Stockholder Litigation, C.A. No. 11580-VCMR (transcript, May 26, 2017), she denied a motion to delay trial, stating:

People have been hearing from virtually every member of the court that we are busier than we have ever been. The ironic effect of losing the assembly line, nonlitigation litigation has been that people are now engaging in real litigation. That real litigation requires more rather than less judicial attention, just like I suspect it requires more rather than less litigant attention. So I am less capable of accommodating scheduling changes now than I was in [2014], when a substantial portion of this Court’s docket was fake litigation that bore none of the hallmarks of real litigation.

Vice Chancellor Laster commented in March 2017 that the number of trials scheduled in Chancery was at an all-time high. Diep v. Sather [El Pollo Loco], C.A. No. 12760-VCL (transcript, Mar. 27, 2017). According to The Chancery Daily, Vice Chancellor Slights commented in February that “Every judge on this Court has trials stacked up almost every week through the summer and early fall [2017],” and Vice Chancellor Glasscock commented in April 2017 that he was all but booked solid with trials through June 2018. He noted that the Court “is confronting an unusually high demand for trials.” See The Chancery Daily, May 26, 2017.

All this constitutes at-least-anecdotal evidence that, at least from the Court’s point of view, Trulia, while it has decreased the quantity of fake merger litigation, has more than compensated by increasing the quality of real merger litigation being experienced by the Court. Not only has the demise of Delaware as the preferred venue for merger litigation been greatly exaggerated, its status has been enhanced by Trulia.

In addition, some plaintiffs’ attorneys have complained that the Delaware Supreme Court’s decision in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), which provides a safe harbor for interested mergers, has made it prohibitively difficult to get expedited pre-closing discovery, raising the threat that fraud-infected mergers may not be scrutinized at all. However, based on the comments from the Court noted above, it appears that more, not fewer, meritorious cases are being sustained post-merger and surviving to a later stage at which they are subject to full-blown discovery before trial.

 

James G. (Jay) McMillan is a partner in the Wilmington, Delaware office of Halloran Farkas + Kittila LLP. He concentrates his practice in complex corporate and commercial matters, with a particular focus on litigation in the Delaware Court of Chancery. For more information about the firm, visit hfk.law.