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Chancery Adopts Heightened Standard for Supplemental Disclosure Mootness Fee Awards in M&A Litigation

Anderson v. Magellan Health, Inc., et al., C.A. No. 2021-0202-KSJM (Del. Ch. July 6, 2023)
This opinion clamps down on mootness fee awards for immaterial supplemental disclosures in connection with M&A transactions. It announces that future mootness fees for supplemental disclosure will only be awarded where such disclosures are “material” not merely “helpful,” and even when such fees are awarded, they may be much lower than those awarded historically.

This decision arose out of the stockholder plaintiff's attempt to enjoin a merger between Magellan Health and Centene Corporation. Prior deal confidentiality agreements contained "don’t-ask-don’t-waive" standstill provisions, which the plaintiff claimed tainted the merger's negotiation and approval process. Early in the case, Magellan agreed to waive some of these provisions and issued supplemental disclosures. In response, the plaintiff dismissed its lawsuit as moot and sought $1.1 million in fees and costs for causing the corrective action. Magellan opposed these requests, arguing that the plaintiff's counsel was entitled to no more than $75,000 to $125,000 based on the meager benefits obtained. In a short bench ruling, the Court of Chancery found for Magellan and awarded $75,000. After strong interest from the academic community, the Court issued this decision to explain its reasoning. 

The Court first found the standstill provision waiver of no value, and thus, any fee award would have to be supported by the supplemental disclosures. In addressing those disclosures, the Court's decision recounted the evolution of Delaware jurisprudence regarding fee awards in deal litigation, outlining that prior to recent, important doctrinal developments, defendants were more incentivized to settle early to avoid heightened judicial scrutiny and burdensome, costly litigation. Disclosure-only settlements with sizable fee awards proliferated, which led to in In re Trulia, Inc. in 2016. Trulia adopted a new standard, announcing that the Court of Chancery would approve disclosure-only settlements only where the new disclosures were "plainly material." Trulia significantly reduced so-called "deal tax" litigation in Delaware (with many suits bleeding over into federal courts as federal securities claims).

In In re Xoom Corp., however, the Court of Chancery declined to adopt Trulia's "plainly material" standard in the context of voluntary supplemental disclosures and mootness fees. Under Xoom, voluntary supplemental disclosures that were merely "helpful" would support a modest mootness fee to plaintiffs' counsel. While this standard aided judicial economy, it also created a "risk that plaintiffs' counsel would pursue weak disclosure claims with the expectation that the defendants would rationally issue supplemental disclosures and pay a modest mootness fee as a cheaper alternative to defending the litigation."

Here, considering Delaware's substantial but incomplete progress in reducing reflexive merger litigation through doctrinal developments, the Court found little sense in continuing the Xoom standard—a rule "that seems to encourage the pursuit of legally meritless disclosure claims." Accordingly, the Court announced that going forward, it would award mootness fees for supplemental disclosures only when the new information is material. Because it was announcing a new rule, the Court found it unjust to apply it here. The Court, therefore, applied the Zoom standard and entered the modest $75,000 award for what were marginally helpful supplemental disclosures.

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