This Article evaluates recent dramatic developments in Delaware law surrounding merger litigation and concludes that they have gone too far in limiting the ability to challenge managerial wrongdoing in the takeover context. The past three years have seen a sea change in merger litigation, brought on by the twin earthquakes of the Delaware Supreme Court’s decision in Corwin v. KKR and the Delaware Court of Chancery’s decision in In re Trulia. Both of these decisions were inspired by a perceived crisis in merger litigation. By 2015, the percentage of economically significant deals challenged by at least one lawsuit had been hovering at or above 90% for years. The vast bulk of these suits were resolved via “disclosure only” settlements that provided little or no value to stockholders, but secured broad releases from liability for defendants and significant fees for plaintiffs’ attorneys. Decades of academic debate over the merits of stockholder litigation had reached a rare degree of consensus: at least with regard to merger lawsuits, the merits were meaningless and litigation had devolved into absurdity.
The explosion of dubious merger litigation demanded a response. On the one hand, most prominently in In re Trulia, the Court of Chancery took direct and long-overdue measures to remove the incentives that drove the crisis by increasing scrutiny of low-value settlements and accompanying releases of liability. On the other hand, a series of ill-considered decisions culminating in Corwin allowed defendants to avoid judicial scrutiny altogether by adopting various procedural safeguards, despite the lack of evidence that these safeguards will be effective. These decisions will almost certainly reduce merger litigation but are likely to do so relatively indiscriminately, blocking frivolous and meritorious claims alike. This Article concludes that the procedural safe harbors created in Corwin and its brethren should be reconsidered as unjustified by the recent merger litigation crisis, and inconsistent with longstanding Delaware law and the realities of merger practice.
Merger Litigation, Corporate Governance, Fiduciary Duty
10 U.C. Irvine L. Rev. 55 (2019)
Korsmo, Charles R., "Delaware’s Retreat from Judicial Scrutiny of Mergers" (2019). Faculty Publications. 2090.