Court of Chancery Rejects Inadequate Settlement
The Court of Chancery for over 30 years has cautioned against reaching a settlement of a class or derivative case and closing the transaction that was the subject of the litigation without having first secured court approval of the settlement. The concern is that the closing may make the court's approval a moot question. Here, the settlement involved additional disclosures in connection with the stockholder vote and payment of attorney fees, but the Court was not asked to approve the settlement before the transaction closed. After the fact, the Court declined to approve the settlement.
There is no clear solution to the problems presented when there is a need to close a deal before a hearing may be scheduled, with the usual 45 days notice to the class. At a minimum, the Court should be notified of the settlement and probably should be asked for leave to close the deal before the settlement hearing occurs. This is particularly true when the settlement does not involve any post-closing relief, such as future corporate governance provisions.This decision is also noteworthy for the Court's concerns over the adequacy of the settlement. The transaction under attack in the litigation seemed to involve serious duty of loyalty issues that were not addressed in the settlement. These concerns were an independent basis for the Court's refusal to approve the settlement.Share