How Rural/Metro Exposed the Systemic Problem of Disclosure Settlements

Abstract:     

The outcome of the Rural/Metro litigation calls into question the major premise of disclosure settlements – that a global release of claims in exchange for supplemental disclosures is justified, supposedly because it safely can be assumed that the released damages claims challenging the transaction under Revlon and its progeny have been investigated and analyzed and have been found to be weak. In Section II of this article, I discuss the history of disclosure settlements and postulate that the Rural/Metro litigation prompted a decisive break with an era of routine approval of disclosure settlements. In Section III of this article, I discuss the contrast between the disclosure settlement phase and the post-disclosure settlement phase of Rural/Metro and how that contrast sheds light on policy issues raised by the routine approval of disclosure settlements. I argue that a generation of routine disclosure settlements has undermined in various respects the proper functioning of a system for the judicial enforcement of fiduciary duties.

Number of Pages in PDF File: 42

Keywords: Rural/Metro, Disclosure Settlements

JEL Classification: K22, K41