Delaware Chancery Court Rejects Proposed Merger Settlement Emphasizing Need for Case-Specific Assessment of Settlement Consideration and Attorneys’ Fees

On July 8, 2015, Vice Chancellor Laster of the Delaware Chancery Court rejected an unopposed motion for a final settlement and attorneys’ fees in a case challenging a merger transaction. Acevedo v. Aeroflex Holding Corp., CA No. 7930-VCL (Del Ch. July 8, 2015). (h/t Delaware Corporate & Commercial Litigation Blog).

The proposed settlement consisted of supplemental disclosures and two deal modifications, the reduction of a termination fee from $32 million to $18 million and the reduction of the matching rights period by one day. The seller, however, did not receive any final topping bid, and plaintiff’s counsel conceded that they found no evidence of any conflict in connection with the transaction. The court acknowledged that this is the type of settlement that courts “have long approved on a relatively routine basis.” However, Vice Chancellor Laster questioned the value of the settlement consideration and ultimately concluded that the relief obtained was insufficient to support the “intergalactic” or “broad class-wide release that extinguish[ed] all claims against” defendants that the parties had sought.

In rejecting the proposed settlement and plaintiff’s fee award of $825,000, Vice Chancellor Laster provided important guidance on assessing the value of therapeutics-only settlements and the accompanying claims for a plaintiff’s fee award. Vice Chancellor Laster emphasized the importance of context in valuing settlement consideration and fee awards. In the hearing, he focused extensively on the deal modifications, observing that this relief did not match the alleged problems with the merger and that plaintiff “fixed something that didn’t need fixing . . . and [argued] that it’s worthy of a release and fee.” He noted that this relief might “be worth something to someone” but it had little to no value here. Thus, with respect to a proposed fee award, plaintiff could not simply rely on formulas or guidelines set forth in prior cases.

While plaintiff argued for a significant fee award for the deal modifications based on In re Compellent Technologies, Inc. Shareholder Litig., 2011 WL 6382523 (Del. Ch. 2011), Vice Chancellor Laster commented that “you have to look at these things in context.” He thus valued the deal modifications in this context as worth $40,000 to $50,000. He also valued the supplemental disclosures as worth “a low-end disclosure fee” around approximately $200,000. In so doing, he acknowledged he had previously advocated “the $500,000 baseline” fee award for disclosures but advised that this number “wasn’t supposed to be something that would displace case-specific analysis.”