For practitioners in the Delaware Court of Chancery, the facts of In re Riverbed Tech., Inc.[1] are all too familiar.  After Thoma Bravo sought to take Riverbed private, a class of stockholders challenged the transaction, claiming that the company had been undervalued, the sales process was undermined by conflicts of interest, and the disclosures in the preliminary proxy statement were inadequate.  As in many other cases—after all, litigation has become a virtual certainty in large merger and acquisition transactions of public companies[2]—Riverbed agreed to make supplemental disclosures before the stockholder vote and pay plaintiffs’ attorney’s fees, in exchange for defendants receiving a broad release from liability for all claims arising from the transaction.  Although Vice Chancellor Glasscock reduced the amount of attorney’s fees awarded due to misgivings about the value of the benefits achieved in light of the broad scope of the release, he approved the settlement.

But Riverbed is noteworthy for the message sent by the Court.  Vice Chancellor Glasscock made it clear that parties should no longer expect that the Court will approve very broad releases in exchange for supplemental disclosures,[3] and also indicated that, going forward, he would reject similar settlements where the release extends “far beyond the claims asserted and the results achieved.”[4]

Although Riverbed is perhaps the first time the message was conveyed in a formal written opinion rather than a bench ruling, Riverbed is certainly not the first warning from the Court of Chancery that it would move to limit disclosure-only settlements, nor is Vice Chancellor Glasscock the only member of the Court to raise concerns about the “intergalactic” releases from liability granted in exchange for these settlements.[5]  Indeed, the day before Riverbed was issued, Chancellor Bouchard requested supplemental briefing on the fairness of the proposed settlement in In re Trulia, Inc.[6]  In fact, the concerns expressed in these cases are hardly new: former Chancellor (now Chief Justice) Strine highlighted similar problems when he rejected the proposed settlements in In re Medicis[7] and In re Transatlantic.[8]

In response to this development, some commenters prophesize that plaintiffs will try to file more lawsuits outside of Delaware.  But this ignores that corporate bylaws selecting Delaware as the exclusive forum for resolving internal corporate disputes have been widely-adopted and held to be valid and enforceable,[9] and are now specifically embraced by statute.[10]  In light of Riverbed, corporations without an exclusive-forum bylaw should carefully consider whether to adopt one.  Furthermore, other forums have also increased judicial scrutiny of disclosure-only settlements and demonstrated a willingness to reject them.[11]

Yet other commentators predict that the trend, of which Riverbed is a part, sounds the death-knell for disclosure-only settlements.  Perhaps, but that seems most unlikely.  The vast majority of all cases settle, and Delaware law clearly embraces the settlement of disputes as a virtue.[12]  Clearly, far too many cases are reflexively filed whenever an acquisition of a public company is announced, and the Court of Chancery is giving a strong signal that such suits will not be coddled.  But that does not mean that there is no way out of M&A litigation absent success on a motion to dismiss or increasing the payment to shareholders in the deal.

Rather, we believe that courts will continue to see, and approve, disclosure-only M&A settlements, but that the releases provided in those settlements will be more tailored to reflect the consideration received by stockholders that the settlement provides to them, and that the fee awards will similarly be more modest.[13]  Indeed, even before Riverbed some parties had already begun to narrow the scope of their releases.[14]

For example, process claims may not be able to be released without the settlement involving something that covers process.[15]  The Court has encouraged litigants to consider this option while drafting settlements,[16] and given the difficulties of pursuing post-closing claims in many cases, particularly where Section 102(b)(7) of the Delaware General Corporation Law exculpates the challenged conduct, narrower releases may still be better than incurring discovery and other litigation costs that may be needed in order for the claims to be dismissed.  This will be even more true if the Court continues to be willing to reduce attorney’s fee awards for weak claims that result in disclosure-only settlements.  In the short term, practitioners should be prepared to carefully draft settlement agreements, which in many cases will no longer include the standard broad release.

In the longer term, however, the Court needs to demonstrate that it will be more willing to dismiss frivolous lawsuits early in the process, in order to encourage defendants to stay in Delaware.  The contours of how that will work are still developing, but in response to an article in the Texas Law Review,[17] Vice Chancellor Laster suggested that the Court should start by re-examining the showing needed to commence expedited pre-vote M&A litigation, a standard which has historically been quite low.[18]  Vice Chancellor Laster reasoned that removing the pressure of a potential preliminary injunction would give defendants time to evaluate the strength of the claim and determine whether to moot it.  Otherwise, the claims could be adjudicated in the ordinary course post-closing.  Additionally, Delaware should consider adopting the “plausibility” standards that now govern in federal court.[19]

Otherwise, the trend of which Riverbed is a part creates the risk that defendants will face protracted litigation they are unable to settle, or are unwilling to settle due to the exposure to liability remaining after a narrow release.  It is also likely that the cost of the cases that do go forward will increase, because those cases will be more aggressively litigated by both sides.  But Riverbed is no anomaly, and parties should expect the Court of Chancery to continue to take steps to try to end the current culture of “deal tax” litigation.


[1] In re Riverbed Tech., Inc., No. C.V. 10484-VCG, 2015 WL 5458041 (Del. Ch. Sept. 17, 2015).

[2] Olga Koumrian, Shareholder Litigation Involving Mergers and Acquisitions—Review of 2014 M&A Litigation, Cornerstone Research (2015), (finding that 93 percent of transactions valued at more than $100 million resulted in litigation).

[3] Riverbed at *6 (noting that this expectation “will be diminished or eliminated going forward in light of this Memorandum Opinion and other decisions of this Court”).

[4] Riverbed at *6.

[5] Riverbed cited recent bench rulings where the Court had rejected or reserved judgment on a proposed settlement.  Riverbed at *6 n.21 (citing Acevedo v. Aeroflex Holding Corp., C.A. No. 9730-VCL (Del. Ch. Jul. 8, 2015) (TRANSCRIPT) and In re InterMune, Inc., S’holder Litig., C.A. No. 10086-VCN (Del. Ch. Jul. 8, 2015) (TRANSCRIPT)).  Riverbed also cited recent bench rulings where the Court had reluctantly approved a settlement but cautioned that such settlements may not be approved in the future.  Riverbed at *6 n.21, 30 (citing In re Susser Holdings Corp. S’holder Litig., C.A. No. 9613-VCG (Del. Ch. Sept. 15, 2015) (TRANSCRIPT); Assad v. World Energy Solutions, Inc., C.A. No. 10324-CB (Del. Ch. Aug. 20, 2015) (TRANSCRIPT); In re TW Telecom, Inc. S’holders Litig., C.A. No. 9845-CB (Del. Ch. Aug. 20, 2015) (TRANSCRIPT)).  But the Court had plenty of cases to choose from, and could also have cited Haverhill Retirement System v. Asali, C.A. No. 9474-VCL (Del. Ch. June 8, 2015) (TRANSCRIPT) (rejecting a settlement in part because the breadth of the release exceeded the narrow scope of the claims explored by plaintiffs) or In re OpenTable, Inc. S’holders Litig., C.A. No. 9776-CB (Del. Ch. May 27, 2015) (TRANSCRIPT) (describing decision to approve settlement as “uncomfortably close”), among others.

[6] In re Trulia, Inc. S’holder Litig., C.A. No. 10020-CB (Del. Ch. Sept. 16, 2015) (TRANSCRIPT).

[7] In re Medicis Pharmaceutical Corp. S’holders Litig., C.A. No. 7857-CS (Del. Ch. Apr. 4, 2014) (TRANSCRIPT) (“[M]ore, more, more [disclosure] is not helpful to stockholders. . . .  The difficulty I have with this is [that] it looks like there was no ‘there’ there for any claims at all, but we’re giving a release . . . this is getting to where I just don’t see enough value here that it’s worth the release.”).

[8] In re Transatlantic Holdings Inc. S’holders Litig., C.A. No. 6574-CS (Del. Ch. Mar. 8, 2013) (TRANSCRIPT) (“And in this situation, what the class is getting is of so little apparent utility that the option value of having some more diligent plaintiff be able to come forward with a damages action in the future, if there is something that arises, frankly, that option value exceeds this.).

[9] Muscular Bylaws, Cleary Gottlieb Alert Memorandum (June 12, 2014),

[10] Christopher E. Austin & Aaron J. Meyers, Highlights from the 2015 Tulane Corporate Law Institute: Forum Selection Bylaws, Cleary M&A and Corporate Governance Watch (April 13, 2015),

[11] See, e.g., City Trading Fund v. Nye, 46 Misc. 3d 1206(A) (N.Y. Sup. Ct. 2015); Gordon v. Verizon Commc’ns, Inc., 2014 WL 7250212 (Sup Ct, N.Y. County Dec. 19, 2014) (appeal pending).

[12] Donald L. Wolfe, Jr. & Michael A. Pittenger, Corporate & Commercial Practice in DE Court of Chancery § 9.04 (“Settlements of class and derivative actions are endorsed and encouraged by the Delaware courts.”).

[13] See, e.g., Riverbed (reducing plaintiffs’ requested fee award from $500,000 to about $330,000); Acevedo (suggesting plaintiffs would be entitled to a mootness fee award of approximately $200,000, rather than the $825,000 agreed to in the settlement).

[14] See, e.g., In re Conversant, Inc. S’holder Litig., C.A. No. 10174-VCL, letter (Del. Ch. Aug. 25, 2015) (advising the Court that it was considering how to modify the proposed settlement in light of recent decisions); Berk v. Covance Inc., C.A. No. 10440-VCL, letter (Del. Ch. July 1, 2015) (revisiting and narrowing the scope of the release before the settlement hearing).

[15] See In re Trulia (“Maybe the tires were kicked on whether the sales process was any good or not . . . but why go beyond where the tires have been kicked into this unknown realm, especially if the consideration on the other side — assuming for the sake of argument it’s not a zero — is marginal?”); In re InterMune (“Why do these facts justify a broad release?  Why shouldn’t the release simply be limited to disclosure claims?”).

[16] See, e.g., In re Susser (noting that the Court was comforted by the parties’ representations that the release did not extend to claims with respect to LP units awarded as merger consideration); Acevedo (stating that one option to move forward after the proposed settlement was rejected would be to seek approval of a settlement in exchange for a release that was limited only to the claims plaintiff actually investigated).

[17] Jill E. Fisch, Sean J. Griffith & Steven Davidoff Solomon, Confronting the Peppercorn Settlement in Merger Litigation: An Empirical Analysis and a Proposal for Reform, 93 Texas L. Rev. 557 (2015).

[18] J. Travis Laster, A Milder Prescription For The Peppercorn Settlement Problem In Merger Litigation, 93 Texas L. Rev. See Also 129, 153 (2015).

[19] See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007); but see Cambium Ltd. v. Trilantic Capital Partners III L.P., 36 A.3d 348 (Del. 2012) (reaffirming that “the governing pleading standard in Delaware to survive a motion to dismiss is reasonable ‘conceivability’”); Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 27 A.3d 531, 535 (Del. 2011) (noting that Delaware’s “governing ‘conceivability’ standard is more akin to ‘possibility,’ while the federal ‘plausibility’ standard falls somewhere beyond mere ‘possibility’ but short of ‘probability’”).