Alison Frankel covers the Hamilton Lincoln Law Institute’s recent success in Akorn and what it means for the future of merger strike suits:
Judge Durkin’s decision could turn out to be a milestone in M&A shareholder litigation in federal court. As I’ve been reporting for a couple of years – and as a recent study by four eminent law professors documents – plaintiffs’ lawyers developed a shrewd response after judges in Delaware Chancery Court essentially ruled out attorneys’ fees for settlements that deliver only additional proxy disclosures. Shareholders’ lawyers began filing M&A class actions in federal court rather than in Delaware, citing federal securities provisions to assure adequate proxy and tender offer disclosures. But instead of settling the federal court cases as class actions, plaintiffs’ lawyers came up with the tactic of brokering settlements between defendants and individual shareholders – voluntarily dismissing the prospective class action complaints and privately negotiating mootness fees for themselves, purportedly to reward them for obtaining additional proxy disclosures.
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The decision is vindication for class action watchdog Ted Frank of the Hamilton Lincoln Law Institute. Frank, an Akorn shareholder, tried to intervene in the litigation in 2017, when plaintiffs’ lawyers disclosed their $322,500 mootness fee in a stipulation asking Judge Durkin to sign an order closing cases voluntarily dismissed by individual shareholders. Judge Durkin denied the motion to intervene but allowed Frank, represented by his colleague Frank Bednarz, to file an amicus brief arguing, among other things, that the 7th Circuit’s Walgreen decision instructs federal judges to scrutinize all prospective class actions, not just cases that end with classwide settlements. (I should note that Walgreen was also a Ted Frank case.)
In Monday’s opinion, Judge Durkin adopted Frank’s reading of the 7th Circuit’s Walgreen precedent. I asked Frank via email if he thinks other federal judges will now follow Durkin’s lead and analyze M&A class action complaints to determine if they should be tossed for seeking immaterial disclosures. Frank said he’s hoping for that outcome, even though judges might seem to have little incentive to scrutinize early-stage filings.
“If enough judges do it, and attorneys get known for repeat violations, maybe disciplinary authorities start to step in against the abuse of the license,” Frank said in an email. He also suggested that Judge Durkin’s opinion might embolden defendants to move to dismiss shareholder M&A complaints instead of capitulating with quick individual settlements.