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M&A litigation shifting to federal courts: Cornerstone

M&A litigation shifting to federal courts: Cornerstone

A 2016 Delaware Court of Chancery ruling has led to a decrease in litigation filed in response to merger and acquisition activity, as well as a shift away from state to federal courts, says a report.

The Delaware court ruled against “disclosure-only” settlements in M&A deals in its In Re Trulia Inc. Stockholder Litigation decision. A disclosure-only lawsuit is litigation filed by plaintiff attorneys following M&A deals that result in their being awarded legal fees when all they did was force defendants to provide largely immaterial disclosures about the deal without conveying any monetary benefit to shareholders.

The report issued by San Francisco-based Cornerstone Research Wednesday said 73% of M&A deals valued at over $100 million were litigated in 2017, which compares to 94% in 2013, with the number declining from an average of 139 during the 2013-2016 period to 112 in 2017.

The number of deals litigated in Delaware declined 81% from 2016 to 2017, to seven from 37.

Meanwhile, the number of M&A deals litigated in federal court increased 20% in 2017, with the number in the most active federal court, 3rd U.S. Circuit Court of Appeals in Philadelphia, more than doubling to 33 from 15.

“It remains to be seen, however, if federal and other courts will continue to grant disclosure-only settlements,” said the report, Shareholder Litigation Involving Acquisitions of Public Companies, Review of 2017 M&A Litigation.





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