Florida Appellate Court Adopts Rigorous Standard for Disclosure Settlements in M&A Litigation

On July 13, 2018, Florida’s Second District Court of Appeal adopted a new standard for trial court review of “disclosure settlements” in mergers and acquisitions class actions in Florida.  In such settlements, a stockholder plaintiff agrees to release class claims against corporate defendants in exchange for additional pre-merger proxy disclosures, and then seeks a court-approved award of fees to plaintiff’s counsel.  As the appellate court noted, the Delaware Court of Chancery described earlier judicial willingness to approve such settlements as having “caused deal litigation to explode in the United States beyond the realm of reason.”

Griffith v. Quality Distribution, Inc., No. 2D17-3160, addresses the disclosure settlement problem by applying the standard first set forth by the Delaware Court of Chancery in In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016) and clarified by the United States Court of Appeals for the Seventh Circuit in Hays v. Walgreen, 832 F.3d 718 (7th Cir. 2016).  Under this standard:

[W]hen a Florida trial court is asked to approve a disclosure settlement in a class action merger lawsuit, in order for a disclosure settlement to pass muster, the supplemental disclosures must address and correct a plainly material misrepresentation or omission and the subject matter of the proposed release must be narrowly circumscribed to encompass nothing more than disclosure claims and fiduciary duty claims concerning the sale process, if the record shows that such claims have been investigated sufficiently.

After Trulia and Walgreen, the rate of mergers and acquisitions litigation in Delaware and the Seventh Circuit plummeted.  Quality Distribution may have the same effect in Florida.

Professor Sean J. Griffith objected to the proposed settlement in the trial court and appealed from the trial court’s approval.  Margrave Law, together with Gelber Schachter & Greenberg, P.A., represents Professor Griffith.

Anthony Rickey of Margrave Law and Adam Schachter of Gelber Schachter & Greenberg, P.A. issued the following statement in response to the ruling:

“Our client, Professor Sean Griffith, is extremely pleased with the Court’s well-reasoned opinion. We believe the Court’s adoption of a new, heightened standard for trial court review of disclosure settlements in mergers and acquisitions class actions is a very positive development for cases in Florida and elsewhere on these important legal issues.”

The opinion is here.