In Re Astex Pharmaceuticals, Inc. Stockholders Litigation, Consolidated C.A. No. 8917-VCL
By Wilson Chu and Jason Jones
On August 25, 2014, Vice Chancellor J. Travis Laster denied a stipulated dismissal order involving the payment of a “mootness fee” as part of the settlement of a disclosure claim because it did not comply with the requirements of In re Advanced Mammography Sys., Inc. S’holders Litig., 1996 WL 633409 (Del. Ch. Oct. 30, 1996).
Astex Pharmaceuticals, Inc. (“Astex”) and Otsuka Pharmaceutical Co, Ltd. (“Otsuka”) entered into an Agreement and Plan of Merger. Various stockholder plaintiffs filed lawsuits asserting claims against Astex, its Board of Directors, and Otsuka, and the court certified a class. One claim asserted that Astex’s stockholders lacked sufficient information to make an informed decision about tendering their shares or seeking appraisal. In response, Astex filed a supplemental Schedule 14D-9 containing additional disclosures on October 1, 2013. After the defendants moved for judgment on the pleadings, the named plaintiffs concluded that their remaining claims lacked merit. The parties then submitted a stipulated dismissal order, which included an agreement whereby defendants would pay a mootness fee relating to the disclosure claim. The court denied the proposed dismissal order pending further submission by the parties explaining how they complied, or proposed to comply, with Advanced Mammography.
Advanced Mammography provides that the board may exercise its business judgment to pay a mootness fee, but it is necessary to (i) notify the court and (ii) provide notice to the class and provide an opportunity for the class to be heard. In addition, “in the context of a claim that is acknowledged to be moot and in which no consideration has been paid to the class, it is not appropriate for the court to purport to release any claims of the class.” Id. at *1. Notice to the class allows the class to argue that the case is not moot, but rather that the mootness fee is in fact a buyout; and enables members of the class to object to such use of corporate funds. Id. In this case, the stipulated dismissal order did not provide notice to the class, and as a result, Vice Chancellor Laster denied the proposal and requested that the parties submit a revised order contemplating notice to the class.