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Court of Chancery Orders Parties to Modify Release Language in Settlement Agreement

Unisuper Ltd. v. News Corp., C.A. No. 1699-N, 2006 WL 1550809 (Del. Ch. May 31, 2006) News Corporation shareholder objected to settlement, arguing the release was overly broad. In October 2005, shareholders of News Corp. filed a complaint asserting claims arising from News Corp.'s announcement that it would extend its poison pill. In December 2005, the Court partially granted defendants' motion to dismiss, but did not dismiss plaintiffs' claims for breach of contract and promissory estoppel. The Supreme Court refused to hear defendants' interlocutory appeal and trial was scheduled to begin in April 2006. Subsequently, the parties agreed to the terms of a settlement. A shareholder owning an 18% equity interest in News Corp. objected to the settlement on the grounds that the release was overly broad. At the fairness hearing, the Court stated it would approve the settlement if the parties could agree to amend the release language so that it was no longer overly broad. The parties agreed upon amended language and submitted the language to the Court for its approval. The Court held that the release language was still overly broad. The Court recognized that a settlement can only release claims based on the same identical factual predicate or operative facts as the underlying action. Therefore, the Court reasoned that a release is overly broad if it releases claims based on facts that will arise in the future, because facts that have not yet occurred cannot be the basis for an underlying action. Although the release in question could release fiduciary duty claims arising from the decision to extend the poison pill in 2004, it could not release claims relating to adoption of a rights plan that was not up for a shareholder vote for five months. The Court also held that the settlement could not release "hidden or concealed" claims because that would implicate self-interested and disloyal conduct by the defendant fiduciaries and complicity in that conduct by the class fiduciaries. The Court invited the parties to make one last good faith effort to satisfy its concerns. Share

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