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Vanderbilt Law Review

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securities law, complex litigation, mootness dismissal, shareholders, empirical legal studies, takeover law, mergers & acquisitions, fiduciary duty


Business Organizations Law | Law


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.



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