Delaware Court of Chancery Rejects Settlement, Finding Additional Disclosure Immaterial | Practical Law

Delaware Court of Chancery Rejects Settlement, Finding Additional Disclosure Immaterial | Practical Law

In a bench ruling, Chancellor Strine of the Delaware Court of Chancery rejected the terms of a settlement agreement stemming from the merger of Transatlantic Holdings Inc. and Alleghany Corporation, finding that the additional proxy disclosures dictated by the settlement agreement were immaterial and that the stockholder plaintiffs were not representative of the class.

Delaware Court of Chancery Rejects Settlement, Finding Additional Disclosure Immaterial

by PLC Corporate & Securities
Published on 21 Mar 2013 • Delaware
In a bench ruling, Chancellor Strine of the Delaware Court of Chancery rejected the terms of a settlement agreement stemming from the merger of Transatlantic Holdings Inc. and Alleghany Corporation, finding that the additional proxy disclosures dictated by the settlement agreement were immaterial and that the stockholder plaintiffs were not representative of the class.
In a bench ruling on February 28, 2013, Chancellor Strine of the Delaware Court of Chancery declined to certify a class, approve a settlement agreement or approve attorney fees stemming from the litigated merger of Transatlantic Holdings Inc. and Alleghany Corporation (In re Transatlantic Holdings Inc. Shareholders Litigation, Case No. 6574-CS (Del Ch. Feb. 2013) (TRANSCRIPT)). For a summary of the underlying merger agreement, see PLC What's Market, Alleghany Corporation/Transatlantic Holdings, Inc. Merger Agreement Summary. The settlement agreement had provided for no monetary compensation, but mandated that the defendants amend the proxy statement to include additional disclosures.
In a ruling that Chancellor Strine characterized as rare, he found that:
  • The stockholder class was not adequately represented by one plaintiff who held only two shares and likely did not vote on the merger and another plaintiff who could not remember if he voted on the merger.
  • The additional proxy disclosures agreed to in the settlement were not meaningful or even interesting to someone voting on the merger.
Chancellor Strine did not fault the defendants for trying to settle non-meritorious claims at a low cost. Rather, he admonished the plaintiffs and their attorneys for failing to demonstrate why the extracted disclosures would be useful to voting stockholders.
This ruling signals that the Court of Chancery will scrutinize the terms of a settlement agreement and the stockholders representing the class. Though its effect on reducing the abundance of lawsuits following the announcement of public mergers cannot be predicted, the ruling shows plaintiffs that the court does not support quick payouts on non-meritorious claims.
Court documents: