Delaware Chancellor Andre Bouchard has issued a decision that serves as a warning to class action attorneys who pounce on many merger deals.
Last week, Bouchard ruled against a settlement in case involving the $3.5 billion acquisition in 2014 of residential real estate website Trulia by competitor Zillow.
The lawsuit from the law firm Rigrodsky & Long claimed shareholders of Trulia did not receive a fair price for their stock.
Rigrodsky & Long, which an office in north Wilmington. files large numbers of lawsuits related to acquisitions of public companies.
While acknowledging that in some cases, the suits raise valid issues, he added that “far too often such litigation serves no useful purpose for stockholders. Instead, it serves only to generate fees for certain lawyers who are regular players in the enterprise.”
Bouchard wrote that defendants frequently “settle quickly in order to mitigate the considerable expense of litigation and the distraction it entails, to achieve closing certainty, and to obtain broad releases as a form of “deal insurance.”
He wrote the proposed Trulia settlement “will not provide Trulia stockholders with any economic benefits. The only money that would change hands is the payment of a fee to plaintiffs’ counsel.”
Bouchard’s ruling acknowledged that Delaware walks a tightrope in dealing with such lawsuits and acknowledged the possibility that lawyers could simply move the actions to other states. He said companies incorporated in the state could add layers of protection.
“It is within the power of a Delaware corporation to enact a forum selection bylaw to address this concern. In any event, it is the court’s opinion, based on its extensive experience in adjudicating cases of this nature, that the historical predisposition that has been shown towards approving disclosure settlements must evolve for the reasons explained above. We hope and trust that our sister courts will reach the same conclusion if confronted with the issue,” Bouchard wrote.
He went on to refute arguments by attorneys for the plaintiffs that supplemental disclosures in materials going to shareholders would have aided Trulia shareholders in getting a higher price for their stock.
