Federal securities class action filings continued their record pace during the first half of 2018, bolstered by the recent uptick in M&A-related filings, which comprised 50% of the overall cases. In these M&A cases, a plaintiff typically challenges, on behalf of a proposed class of shareholders, certain disclosure documents seeking shareholder approval of the proposed transaction (usually a proxy statement). A recent study revealed that 73% of public company M&A deals valued over $100 million drew litigation in 2017. Because such litigation poses a risk that the transaction may be delayed, companies facing these lawsuits often make the pragmatic decision to issue supplemental disclosures and pay attorneys’ fees to plaintiffs’ counsel in order to eliminate the timing risk the litigation poses. A recent case involving Triangle Capital Corporation demonstrates that settlement may not be the only path for companies wishing to keep their transactions on schedule, and that litigating these nuisance claims remains a viable option.

BACKGROUND AND RECENT SHIFT IN LIKELY VENUE FOR M&A LITIGATION -

Until fairly recently, the most likely venue for these cases was the Delaware Court of Chancery, given most U.S. public companies are incorporated in Delaware. However, in a series of decisions culminating in In re Trulia, Inc. Stockholder Litigation in January 2016, the Delaware Court of Chancery announced it had reached its breaking point with the “flurry of class actions” following “the public announcement of virtually every transaction involving the acquisition of a public corporation,” which litigation it found “far too often ... serves no useful purpose for stockholders” and instead “serves only to generate [attorney’s] fees.” Criticizing plaintiffs’ counsel for flooding the court’s docket with fee-driven lawsuits, defense counsel for robbing the court of its key “gating mechanism” against frivolous cases by often pragmatically “self. expedit[ing] the litigation,” and itself for enabling the bloom of meritless deal suits, the Chancery Court announced that it would no longer rubberstamp disclosure-only settlements in an effort to curb this type of litigation.