District Court Judge Rejects M&A Mootness Fee Settlement As A “Racket” That “Must End”

Seyfarth Synopsis: Following Delaware’s lead in Trulia, an Illinois District Court judge refused to approve a mootness fee settlement as “worthless to the shareholders.” The judge noted that such settlements amounted to a plaintiffs’ bar “racket” with the goal of obtaining fees in cases that should be “dismissed out of hand.” Specifically, Judge Thomas M. Durkin exercised his “inherent authority” to abrogate the settlement of shareholder litigation arising out of the proposed acquisition of Akorn, Inc. In ordering Plaintiffs’ counsel to return the $322,000 mootness fee paid in connection with the settlement, the Court signaled that this decision should mark the beginning of the end for the merger objection litigation “racket,” which recently shifted from Delaware Chancery Court to federal court following Delaware’s 2016 Trulia decision, which cracked down on merger litigation in Delaware. A recent study1 about mootness fees found that in 2018 alone at least 65% of federal merger litigation filings resulted in a settlement after supplemental disclosures were made accompanied by the payment of a mootness fee to Plaintiffs’ attorneys. These mootness fee settlements generally occur without meaningful judicial oversight, and the negotiated supplemental disclosures often provide little or no value to shareholders.

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