February 29, 2016
The Delaware Court of Chancery has made its strongest statement yet in the ongoing conversation about shareholder “disclosure settlements,” i.e., settlements in which the sole or primary consideration received by shareholders in exchange for releasing their claims is the dissemination of one or more disclosures to supplement the proxy materials soliciting their approval for the challenged transaction. 

In his recent opinion in In re Trulia, Inc. Stockholder Litigation, Chancellor Bouchard advised that “to the extent that litigants continue to pursue disclosure settlements, they can expect that the Court will be increasingly vigilant in scrutinizing the ‘give’ and the ‘get’ of such settlements to ensure that they are genuinely fair and reasonable to the absent class members.”   

The Chancellor declined to approve the disclosure settlement proffered in Trulia, which sought to resolve breach of fiduciary duty claims challenging the fairness of a stock-for-stock merger transaction through a remarkably broad release of all claims purchased with disclosure enhancements (which the Chancellor determined were immaterial and not helpful to shareholders) and a payment of attorney fees to plaintiffs’ counsel. 

Under Trulia, litigants should expect an abrupt departure from the historic predisposition toward approving disclosure settlements, and assume that such settlements from this point forward will be subjected to heightened judicial scrutiny.

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