Mootness Fees

43 Pages Posted: 4 Jun 2019

See all articles by Matthew D. Cain

Matthew D. Cain

Berkeley Center for Law and Business

Jill E. Fisch

University of Pennsylvania Law School - Institute for Law and Economics

Steven Davidoff Solomon

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy; European Corporate Governance Institute

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Date Written: May 29, 2019

Abstract

We examine the latest development in merger litigation: the mootness fee. Utilizing a hand-collected sample of 2,320 unique deals from 2003-2018, we find that Delaware’s crackdown on merger litigation substantially altered the merger litigation landscape. Although merger litigation rates remain high, and in 2018 83% of deals experienced litigation, plaintiffs’ lawyers have fled Delaware. In 2018 only 5% of completed deals experienced merger litigation in Delaware compared to 50%-60% in prior years. These cases have migrated to federal court where in 2018 92% of deals with litigation experienced a filing. We find that at least 65% of these federal filings resulted in voluntary dismissal of the case after a supplemental disclosure coupled with the payment of a mootness fee to plaintiffs’ attorneys.

These mootness dismissals, in most cases, occur without an adversarial process, meaningful judicial oversight or an evaluation of whether the complaint even states a colorable claim. Many of these supplemental disclosures provide little or no value to plaintiff shareholders. We argue that these payments are a form of blackmail antithetical to the spirit and principles of civil procedure and that they perpetuate litigation that imposes substantial costs on the judicial system and public companies.

The article proposes that courts address these concerns by requiring transparency of mootness fees and overseeing the circumstances in which such fees are paid. We argue that the Federal Rules of Civil Procedure should be amended to require disclosure and judicial approval of the payment of a mootness fee when a proposed class action is voluntarily dismissed. We further argue that courts should only approve the payment of such a fee when the supplemental disclosures that moot the litigation are “clearly material.”

Keywords: securities law, complex litigation, mootness dismissal, shareholders, empirical legal studies, takeover law, mergers & acquisitions, M&A, attorney fees, class actions, forum selection, fiduciary duty, Federal Rules of Civil Procedure, FRCP

JEL Classification: G34, G38, K41

Suggested Citation

Cain, Matthew D. and Fisch, Jill E. and Davidoff Solomon, Steven and Thomas, Randall S., Mootness Fees (May 29, 2019). Vanderbilt Law Review, Forthcoming; U of Penn, Inst for Law & Econ Research Paper No. 19-26. Available at SSRN: https://ssrn.com/abstract=3398405

Matthew D. Cain

Berkeley Center for Law and Business ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

Jill E. Fisch (Contact Author)

University of Pennsylvania Law School - Institute for Law and Economics ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-746-3454 (Phone)
215-573-2025 (Fax)

Steven Davidoff Solomon

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Randall S. Thomas

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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