In re Trulia, Inc. Stockholder Litigation: Delaware Chancery Court Rejects Proposed Disclosure-Only Settlement as Inadequate and Makes Clear That Disclosure-Only Settlements Will Only Be Approved if the Supplemental Disclosures Are “Plainly” Material and the Releases Narrowly DrawnSullivan & Cromwell LLP - January 26, 2016
In a decision continuing the trend over the past year of increased judicial scrutiny of proposed settlements of stockholder merger litigation, the Delaware Court of Chancery (Bouchard, C.) rejected a disclosure-only settlement as inadequate, finding that the supplemental disclosures obtained by the plaintiffs were not “plainly” material and, thus, insufficient to support the release of stockholder claims against the defendants. The Court’s decision makes clear that disclosure-only settlements will be met with “continued disfavor” unless the “get” of supplemental disclosures is “plainly” material in a way that “significantly alters the total mix of information made available” to stockholders (i.e., addressing a material misrepresentation or omission). In its decision, the Court expounds upon the pitfalls of non-adversarial disclosure-only settlements that have proliferated in the last decade despite the fact that many perceive them to lack any real benefit to stockholders, especially when combined with the loss of potentially valuable claims against targets and their directors that “have not been investigated with rigor,” emphasizing that Delaware courts will be much more vigilant in their review of disclosure-only settlements in the future. Acknowledging that the plaintiffs’ bar may attempt to reach disclosure settlements in other jurisdictions as a result of Delaware’s stance, the Court, noting the availability of forum selection clauses, expressed its “hope and trust” that, if litigation were to move to other courts, those courts would reach the same conclusion as the Chancery Court on the issue.