M&A Litigation Update

Court calendars across the country—and in Washington—are filled with cases business leaders need to keep an eye on. But certain recent securities litigation cases demand special attention from directors, at least according to Jared Gerber, a partner with Cleary Gottlieb Steen & Hamilton, whose practice focuses on securities litigation and other actions filed by shareholders. Corporate Board Member recently spoke with Gerber about the impact of these cases. This is part 3 of a 3 part series. Click here for parts 1 and 2.

The number of lawsuits filed in the Delaware Court of Chancery challenging mergers and acquisitions has declined sharply in the two years since Chancellor Bouchard’s opinion in Trulia Inc. Stockholder Litigation made it clear that the court would no longer approve disclosure-only settlements, unless those disclosures were deemed “plainly material.” During 2016, Gerber says, only 73% of all public deals valued over $100 million faced litigation, the lowest rate since 2009.

“we are seeing a transition where these cases are being filed in other states and increasingly in federal court to test whether similar rulings will be adopted.”

In response to that opinion, Gerber notes, “we are seeing a transition where these cases are being filed in other states and increasingly in federal court” to test whether similar rulings will be adopted. Some state courts have indicated they will adopt Trulia’s enhanced scrutiny of such settlements, but Gerber says the overall response has been mixed.

Meanwhile, exclusive forum bylaws, which require challenges to mergers and acquisitions to be brought in a designated forum, have been increasingly adopted by corporations, hampering some plaintiff’s attempts to file suit in alternative forums. And federal courts ultimately may not be more receptive to these types of claims, Gerber says, though time will tell.

The number of securities class actions alleging federal disclosure violations skyrocketed in 2016 and that trend has continued in the first half of 2017. Exclusive forum bylaws don’t bar plaintiff filings in federal court because the claims are based on federal law.

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Kimberly Crowe
Kimberly Crowe is managing editor with Corporate Board Member magazine, a publication of Chief Executive Group.