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http://www.law360.com/articles/713087/chancery-blasts-disclosure-only-deal-in-hp-merger-suit
Judge Blasts Disclosure-Only Deal In Hp Merger Suit
By Bryan Koenig
Law360, Washington (October 9, 2015, 9:37 PM ET) — A Delaware Chancery judge on Friday quashed a proposed settlement that sought to resolve an investor lawsuit over Hewlett-Packard’s $2.78 billion merger with Aruba Networks, a settlement the judge called part of a systemic problem of disclosure-only resolutions. Vice Chancellor J. Travis Laster’s rejection of the settlement — and outright dismissal — follows a growing pattern in recent months of Chancery judges lashing out at, and sometimes rejecting, disclosure-only settlements with investors challenging a merger, settlements in which the only money that changes hands is hundreds of thousands of dollars in attorneys’ fees.
“I think that we have reached a point where we have to acknowledge that settling for disclosure only and giving the type of expansive release that has been given has created a real systemic problem,” Vice Chancellor Laster said from the bench, according to a transcript. “We've all talked about it now for a couple years.”
Vice Chancellor Laster said that he might have accepted the settlement had the parties simply released the disclosure claims, since that could have potentially paved the way for a direct monetary claim later if something were found wrong with the disclosures.
“The disclosures were something. You got disclosures. So release the disclosures. I don't know why you get to release for nothing these other claims,” he said from the bench. “The historical basis for this has just been the defendants' desire for complete peace. I would like complete peace. I would like peace in our time, without appeasement. But just because you want it doesn't mean you get it.”
The shareholder lawsuit is a consolidation of seven that followed the March announcement that Hewlett-Packard Co. would pick up Aruba Networks Inc., a provider of wireless network infrastructure for mobile enterprises, in the hopes of bolstering its ability to serve business customers increasingly dependent on mobile technology. The plaintiff shareholders reacted by alleging the $24.67-per-share cash deal was well below what Aruba should have sold for and sought an injunction barring the merger from moving forward.
The rejected July 1 settlement — reached in principal April 22 — that would have resolved the dispute called for $387,500 in attorneys’ fees for the shareholders’ counsel. The plaintiffs had argued in a Sept. 25 brief that the supplemental disclosures were materially beneficial to the class, curing omissions and/or misstatements found in the financial proxy statement on the merger filed with the U.S. Securities and Exchange Commission.
On Friday however, Vice Chancellor Laster said the suit wasn’t meritorious from the get-go. He also refused to certify the investor class based on inadequacy of representation.
“And I will dismiss as to the named plaintiffs on that basis. And I say that because this does look to me like a harvesting-of-a-fee opportunity,” he said. “It looks to me like it was set up as a harvest case, because there wasn't a basis to file in the first place. Then, once you guys actually had something fall into your lap, in terms of a litigable ‘something’, it was just dealt with through the disclosure and the fee.”
Vice Chancellor Laster cautioned however that his ruling was not an indictment of the attorneys but rather simply to say that in this instance, “I’m not buying it.”
Vice Chancellor Laster may not be the only one who questions the value of disclosure-only settlements to class members. His ruling follows those like the Sept. 18 decision from Vice Chancellor Sam Glasscock III, who signed off on a $3.6 billion take-private merger of San Francisco software company Riverbed Technology Inc. by private equity firm Thoma Bravo, only to suggest that his approval may be the last disclosure-only settlement ever in the high-profile business court.
Representatives for the parties declined comment Friday.
The plaintiffs are represented by Donald J. Enright of Levi & Korsinsky LLP, Gregory Mark Nespole of Wolf Haldenstein Adler Freeman Herz LLP, Peter B. Andrews and Craig J. Springer of Andrews & Springer LLC, and Brian D. Long and Gina M. Serra of Rigrodsky & Long PA.
The defendants are represented by Marc J. Sonnenfeld of Morgan Lewis & Bockius LLP, Bradley D. Sorrels, Tamika Montgomery-Reeves, Ian R. Liston, Ignacio E. Salceda, Catherine Moreno and Diane M. Walters of Wilson Sonsini Goodrich & Rosati PC, and Michael P. Kelly, Andrew S. Dupre and Christopher A. Selzer of McCarter & English LLP.
The case is In Re Aruba Networks Inc. Stockholder Litigation, Consolidated C.A. No. 10765-VCL, in the Court of Chancery of the State of Delaware.
–Additional reporting by Cara Salvatore, Matt Chiappardi and Tom Zanki. Editing by Aaron Pelc.
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