Shareholder class and derivative suits quickly follow virtually every significant merger announcement. The vast majority of those suits that are not dismissed settle quickly, with the defendant corporation typically agreeing to additional disclosures (or other non-cash relief) and payment of attorneys’ fees. As one commentator has put it, payment of attorneys’ fees effectively becomes a tax on M&A transactions. The three recent rulings discussed below, however, suggest a trend towards greater judicial scrutiny of “disclosure-only” merger litigation settlements and, in particular, attorneys’ fee awards in such settlements.

IN RE TRANSATLANTIC HOLDINGS INC. SHAREHOLDERS LITIGATION -

On March 8, 2013, Chancellor Leo Strine of the Delaware Court of Chancery denied an unopposed motion to approve a settlement in In re Transatlantic Holdings Inc. Shareholders Litigation, finding that the settlement did not provide sufficient benefits to the shareholder class to justify a class-wide release of claims and an award of attorneys’ fees.