In re Trulia, Inc. Stockholder Litigation

Delaware Court of Chancery · 2016 · Corporations

CorporationsMergers and acquisitionsDisclosure settlementsStockholder class actionsFiduciary disclosure dutiesdisclosure settlementmaterialityplainly material

Facts

After Zillow announced a stock-for-stock acquisition of Trulia, four stockholders filed nearly identical class actions alleging fiduciary breaches by Trulia's directors and aiding and abetting by the corporate defendants. Before any motion was decided and after limited discovery, the parties agreed to settle: Trulia would make supplemental disclosures in its proxy materials, plaintiffs would drop their preliminary injunction effort, and the class would release broad transaction-related claims. The supplemental disclosures concerned additional details about J.P. Morgan's financial analyses summarized in the proxy, and the settlement provided no monetary recovery to stockholders. The court was asked to decide whether those disclosures supplied meaningful consideration sufficient to justify the release.

Issue

Whether a proposed disclosure-only class settlement is fair and reasonable when the supplemental proxy disclosures are not material or helpful to stockholders, yet the settlement would grant defendants a broad release of claims. More broadly, what level of disclosure benefit and what scope of release should support approval of such settlements.

Rule

In reviewing a class settlement under Court of Chancery Rule 23, the court must independently determine whether the settlement is fair, reasonable, and intrinsically fair by evaluating the reasonableness of the 'give' and the 'get.' In the disclosure-settlement context, approval should be disfavored unless the supplemental disclosures address a plainly material misrepresentation or omission, and the release is narrowly circumscribed to cover no more than disclosure claims and sufficiently investigated fiduciary-duty claims concerning the sale process. Information is material only if there is a substantial likelihood that a reasonable stockholder would view it as important in voting because it would significantly alter the total mix of information available.

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Pine Harbor Robotics, a Delaware corporation based in Austin, agreed to merge with a larger rival. Stockholder plaintiffs in Delaware obtained a settlement under which the company added two proxy disclosures: one repeated a synergy figure already shown in a table elsewhere in the proxy, and the other added a banker footnote stating one comparable-company multiple had been unavailable; in return, the class would release all claims relating in any way to the merger under federal, state, statutory, regulatory, and common law.

Should the court approve the settlement?

Explanation. Under Rule 23, the court must independently determine whether a class settlement is fair, reasonable, and intrinsically fair by evaluating the settlement’s give and get. In the disclosure-settlement context, approval is disfavored unless the supplemental disclosures are plainly material and the release is narrowly circumscribed. Redundant or trivial disclosures that do not significantly alter the total mix of information provide no meaningful consideration for a sweeping release.