Disclosure-Only Settlements Face Continued Scrutiny In Delaware

On Thursday, September 17, 2015, in In re Riverbed Technology, Inc. Stockholders Litigation, the Delaware Chancery approved a disclosure-only settlement related to the go-private deal for Riverbed Technology, Inc. Although the court approved the settlement, it expressed serious reservations about the broad releases provided to Riverbed’s directors in exchange for enhanced disclosures that provided little value for shareholders. In re Riverbed is yet another in a line of Delaware cases that have expressed dissatisfaction with the current trend of merger litigation resulting in disclosure-only settlements.

The Concerns Presented By Litigation Without Adversaries -

In In re Riverbed, Vice Chancellor Glasscock outlined the general agency issues that are presented by class litigation opposing mergers. First, a plaintiff’s attorney has incentive to reach settlement quickly to avoid the additional effort to develop valuable claims that may not generate an additional fee. Second, the defendants have incentive to consummate the merger and terminate threats of future litigation. “In combination, the incentives of the litigants may be inimical to the class: the individual plaintiff may have little actual stake in the outcome, her counsel may rationally believe a quick settlement and modest fees is in his best financial interest, and the defendants may be happy to ‘purchase,’ at the bargain price of disclosures of marginal benefit to the class and payment of the plaintiffs’ attorney fees, a broad release from liability.” This leaves courts to determine the value of the claims that are released in comparison to the value of the settlement, which requires a balancing of “the policy preference for settlement against the need to insure that the interests of the class have been fairly represented.”