Seventh Circuit Endorses Court of Chancery Standard for Disclosure Cases

The Seventh Circuit, in an opinion by Judge Posner, today reversed and remanded the approval of a disclosure settlement in In re Walgreen Co. Stockholder Litigation, No. 15-3799 (7th Cir. Aug. 10, 2016).  The decision endorsed the Delaware Court of Chancery’s standard for the approval of disclosure settlements from In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016).  Id. at 10 (“And so Trulia adopted a clearer standard for the approval of such settlements, . . . which we endorse, and apply in this case. . . .”)

The decision also addressed the issue of adequacy of representation:

A class ‘representative who proposes that high transaction costs (notice and attorneys’ fees) be incurred at the class members’ expense to obtain [no benefit] . . . is not adequately protecting the class members’ interests.’ In re Aqua Dots Products Liability Litigation, 654 F.3d 748, 752 (7th Cir. 2011). Courts also have ‘a continuing duty in a class action case to scrutinize the class attorney to see that he or she is adequately protecting the interests of the class, and if at any time the trial court realizes that class counsel should be disqualified, the court is required to take appropriate action.’ In re Revlon, Inc. Shareholders Litigation, 990 A.2d 940, 955 (Del. Ch. 2010) (quoting 4 Newberg on Class Actions § 13:22, at 417 (2002)).

The oddity of this case is the absence of any indication that members of the class have an interest in challenging the reorganization that has created Walgreens Boots Alliance. The only concrete interest suggested by this litigation is an interest in attorneys’ fees, which of course accrue solely to class counsel and not to any class members. Certainly class counsel, if one may judge from their performance in this litigation, can’t be trusted to represent the interests of the class. Because the settlement can’t be approved, we reverse the district court’s judgment. And since class counsel has failed to represent the class fairly and adequately, as required by Federal Rule of Civil Procedure 23(g)(1)(B) and (g)(4), the district court on remand should give serious consideration to either appointing new class counsel, cf. Fed. R. Civ. P. 23(g)(1), or dismissing the suit. Cf. Robert F. Booth Trust v. Crowley, supra, 687 F.3d at 319.