M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Monday, April 1, 2013

Coupon Settlements and Merger Litigation in Texas

Nate Raymond guest writing on Alison Frankel's On The Case blog points out that a second Texas appellate court has ruled out attorney fees in disclosure only cases.  In August last year, a Texas appellate court in Rocker v Centex ruled that in disclosure only cases, Texas law prohibits attorney from being awarded fees.  Citing "section 26.003(b) of the Texas Civil Practice and Remedies Code", which reads
(b) Rules adopted under this chapter must provide that in a class action, if any portion of the benefits recovered for the class are in the form of coupons or other noncash common benefits, the attorney's fees awarded in the action must be in cash and noncash amounts in the same proportion as the recovery for the class.

The court ruled that where the only benefit for shareholders in a settlement is additional disclosure, then attorneys cannot be awarded fees.  Now, another Texas court has done it again.  This time in Kazman v Frontier Oil the plaintiffs will get nothing following a disclosure settlement.   So, if a case if typical merger related flotsam, the plaintiffs might be hoping to get a couple of minor disclosures and/or reduction in a termination fee in exchange for legal fees and giving the board a global release.  In Texas, that kind of settlement will no longer result in fees for plaintiffs counsel.  That pretty much makes such cases -- or settlements in Texas -- a non-starter from now on.

The coupon settlement legislation in Texas appears to be having a big impact on the development of merger litigation Texas.  One only need to look at Dell.  To be honest, I was a little surprised by the low number of Texas suits followed in connection with this transaction.  Of the 25 suits filed, only 5 of them were filed in Texas.  Of course, coupon settlement legislation is not the answer to multiforum litigation, but it does make Texas uneconomic as a forum for a lot of transaction related litigation.



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