M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, October 25, 2012

Strine: "No Big Fees for Junk"

At a conference DC, Chancellor Leo Strine made his position clear - he will not grant large fees in disclosure-only "junk lawsuits".  On the other hand, he's not going to lose any sleep in making large awards of attorney fees in good cases (e.g. Southern Peru).  If you look at actual awards, this has been true for some time.  The problem though is that being miserly with junk suits isn't enough to dissuade plaintiffs from bringing them. It just pushes them out of Delaware where judges may be less constrained:

Strine agreed such nuisance suits are a problem, especially since lawyers have now mastered the art of filing competing lawsuits in multiple jurisdictions to make it harder for their targets to fight them. “They almost play like a tag team,” Strine said. “You think they’re fighting with each other, but it’s almost a triangulation.”

Defendants bear a lot of the blame for these settlements as well, however. Since they face the same lawyers over and over, both sides have worked out a simple bargain: In exchange for fees, the plaintiff lawyers sell absolution in the form of a blanket settlement of their claims.

“There are defense lawyers who have looked at me with piteous eyes and said `don’t blow up our deal,’” Strine said. “For $375,000, we can get a global release — which sounds like something Sting would have enjoyed — and move on.”

Strine called the proliferation of securities litigation a serious threat to the U.S. economy since it encourages companies to incorporate in other countries. And he expressed scorn for judges in other states who hang on to cases that would be better heard in Delaware. He told the attendees they need to pressure big institutional investors like Fidelity and Vanguard to “get off their duff” and press for changes in corporate bylaws that would require disputes over mergers to be heard in a company’s state of incorporation.

He's right, of course.  There's only so much that the courts can do.  It's left now to firms to engage in some self-help through forum provisions in bylaws/articles of incorporation to funnel cases into Delaware where the economic incentives can start to have some bite.  That was an argument I made in a recent paper.  There is some evidence now that notwithstanding a "status quo bias" against changes like this, firms are starting to include forum provisions in their IPO charters (e.g. Facebook among others).  That's an important step and over time that may have an impact on this issue.

The US Chamber's Institute for Legal Reform issued a report on transaction-related litigation in conjunction with the conference.  The report can be found here.





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