In Sarissa Capital Domestic Fund LP, et al. v. Innoviva, Inc., C.A. No. 2017-0309-JRS (Del. Ch. Dec. 8, 2017), the Delaware Court of Chancery ruled in favor of dissident stockholder plaintiffs, Sarissa Capital Domestic Fund LP, et al. (“Sarissa”) of Innoviva, Inc. (“Innoviva”), concluding that Sarissa and Innoviva entered into a binding, oral settlement agreement to resolve a proxy contest prior to Innoviva’s 2017 annual stockholder meeting and specific performance of the settlement agreement was warranted. Read More
The Court of Chancery granted a motion for leave to modify a settlement agreement in a merger-related class action suit to distribute settlement proceeds through DTC to Dole Food Company, Inc. (“Dole”) common stockholders of record. The Court held that the original stipulation providing for settlement proceeds to be distributed to both record holders and beneficial holders through a traditional notices and claims forms process proved to be too costly and burdensome in practice, which justified modifying the allocation procedure.
In In re Trulia, Inc. Stockholder Litigation, C.A. No. 10020-CB (Del. Ch. Jan. 22, 2016), the Delaware Court of Chancery rejected a proposed disclosure-only settlement because the proposed disclosures were not “plainly” material and the settlement lacked sufficient consideration to warrant the broad release sought by defendants. The court stated that litigants who pursue disclosure-only settlements can expect “increasingly vigilant scrutiny” of the fairness of the “give” and “get” of such settlements. The court also used the opinion to discuss, more broadly, the dynamics that have led to the proliferation of disclosure settlements; focusing mainly on the concern that these settlements rarely yield genuine benefits for stockholders.
This action arose from the acquisition of Trulia, Inc. (“Trulia”) by Zillow, Inc. (“Zillow”) pursuant to a stock-for-stock merger. Following the announcement of the merger, certain Trulia stockholders brought actions in the Court of Chancery, alleging that the Trulia directors breached their fiduciary duties by approving the proposed merger at an unfair exchange rate and by disseminating inadequate disclosures in connection with the solicitation of the stockholder vote on the merger.
By letter-order dated January 14, 2016, Vice Chancellor John W. Noble found that a fiduciary’s self-dealing and personal benefit may preclude the approval of a settlement agreement. By this order, the court refused to approve the proposed settlement because of the equity buyback provision made available only to the plaintiff fiduciary.
In Smollar v. Potarazu, the plaintiff Marvin Smollar (“Smollar”) brought a derivative action on behalf of nominal defendant VitalSpring Technologies, Inc. (“VitalSpring”) against defendant Sreedhar Potarazu, VitalSpring’s Chief Executive Officer (“Potarazu”). Following litigation of the matter, a settlement agreement was agreed to between the parties and submitted to the court for approval (the “Settlement Agreement”). In addition to the relief sought on behalf of VitalSpring, the Settlement Agreement granted Smollar, but not other VitalSpring stockholders, the right to sell Smollar’s shares in VitalSpring back to VitalSpring for the same amount he had purchased it fifteen years ago (the “Buyback Provision”). Other VitalSpring stockholders accordingly objected to the Settlement Agreement and argued that Smollar engaged in a form of self-dealing while serving as a fiduciary.
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.