Mootness Fees

40 Pages Posted: 4 Jun 2019 Last revised: 14 Jan 2020

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, European Corporate Governance Institute

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: 2019

Abstract

In response to a sharp increase in litigation challenging mergers, the Delaware Chancery Court issued the 2016 Trulia decision, which substantively reduced the attractiveness of Delaware as a forum for these suits. In this Article, we empirically assess the response of plaintiffs’ attorneys to these developments. Specifically, we document a troubling trend—the flight of merger litigation to federal court where these cases are overwhelmingly resolved through voluntary dismissals that provide no benefit to the plaintiff class but generate a payment to plaintiffs’ counsel in the form of a mootness fee. In 2018, for example, 77% of deals with litigation were challenged in federal court, and in 63% of litigated cases, plaintiffs’ attorneys received a mootness fee. This compares with 2014, when only 4% of deals with litigation had a filing in federal court and no mootness fees were awarded.

The rise of the mootness fee and the shift to federal court raise several issues, including a lack of transparency in the quality and resolution of merger cases and an increased potential for blackmail litigation. These problems are compounded by the willingness of some courts to permit the payment of a mootness fee in connection with corrective disclosures that are immaterial but possibly helpful, a standard that we argue is unworkable and increases the potential for vexatious litigation. We argue that the widespread payment of mootness fees reflects an inappropriate tax on the judicial system and corporations.

Although we argue that a shift to federal courts is appropriate for litigation challenging the adequacy of merger disclosure, we maintain that a successful shift requires the federal courts to police the quality and resolution of merger litigation carefully. We conclude that federal courts should require that the payment of mootness fees be subject to judicial review. We further argue that the payment of a mootness fee should be conditioned on litigation resulting in a material corrective disclosure—the same legal standard required by Trulia. We propose that the Federal Rules of Civil Procedure be amended to implement these requirements or alternatively that federal judges use their inherent authority to adopt these requirements. We ultimately view these changes as necessary to limit frivolous litigation and provide for transparency and judicial oversight of the litigation process.

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 (2019). Vanderbilt Law Review, Vol. 72, p. 1777, 2019; 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, European Corporate Governance Institute ( 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 the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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