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Court Of Chancery Explores The Effect Of Federal Settlements On A Delaware Action And Applies Unocal To Bylaw Amendments

In re Ebix, Inc. S’holder Litig., Consol. C.A. No. 8526-VCN (Jan. 15, 2016)

This is an interesting decision for two reasons. 

First, the Court explores the effect settlement agreements in two federal court actions might have on claims in a Delaware action.  The decision holds that the settlements did not release the Delaware plaintiffs’ derivative claims because the claims were not based on a factual predicate “identical” to the settled claims.  That has implications for drafting future settlement agreements. 

Second, the Court examined certain Board actions claimed to be entrenching and subject to Unocal review.  An agreement with an activist shareholder that resulted in a shareholder standing down temporarily and nominating two new directors was not subject to Unocal review at the motion to dismiss stage, while bylaw amendments dealing with special shareholder meetings and notice requirements allegedly targeted at staving off future threats from the same shareholder were held to be subject to Unocal review.  This holding provides guidance on how to resolve activist shareholder demands.

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