Wednesday, April 13, 2011
A couple of weeks ago there was some talk of collusive settlements and forum shopping (here). In a case before the Delaware Chancery Court, Vice Chancellor Laster appointed a special counsel in the case of Scully v Nighthawk to answer the question whether the settlement reached in a foreign jurisdiction was collusive and what role, if any, the court should have when it receives notice of an apparent collusive settlement. The Special Counsel's report is here. The bigger issue here relates to merger related litigation leaking out of Delaware to other jurisdictions. I've got a paper on that issue (forthcoming in the UC Davis Law Review).
In any event, the Special Counsel reported back to the Vice Chancellor in the Nighthawk case:
Nevertheless, considering the results reached by courts in the cases discussed above, Special Counsel does not believe that the facts here lead to a conclusion that the settlement in this case was collusive. Settlements in multi-jurisdictional deal litigation are nearly always reached quickly—defendants trying to preserve their transactions need to resolve potential injunction motions before the deals close. The timing of settlement here was consistent with similar cases. The amount of fees ultimately agreed to was within the range of fees generally awarded in disclosure settlements. The amount of discovery provided to plaintiffs was similarly within the bounds of discovery often shared by defendants before settling these types of cases. While this Court’s comments suggested that additional discovery might be warranted, theArizona plaintiffs did provide for post-settlement discovery, likely including depositions.
Now, in a letter to counsel in which he also stayed the Delaware case in favor of the Arizona case, Vice Chancellor Laster has added to the record a mea culpa of sorts. He makes it clear that his questioning of the settlement as collusive was "regrettable and misplaced" and that his question "unfairly cast defense counsel in a negative light."
So, while collusive settlements and forum shopping may continue to be an issue that academics worry about, at least in this case, the court is convinced it was not an issue.