Delaware Supreme Court Addresses Settlement of Class Action Deal Litigation
The Delaware Supreme Court's Decision
The Delaware Supreme Court largely affirmed the Vice Chancellor's decision. With respect to the adequacy of NOERS as the class representative, the court looked closely at the class definition and held that NOERS had standing because it met that definition—it owned stock at the time of the alleged wrongdoing. The court determined that the Vice Chancellor did not abuse his discretion in determining that NOERS could adequately represent the class.
The court also affirmed the Court of Chancery's certification of the class on a non-opt-out basis. Writing for the court, Justice Henry DuPont Ridgely reaffirmed the longstanding rule that "actions challenging the propriety of director conduct in carrying out corporate transactions are properly certifiable under both subdivisions (b)(1) and (b)(2)" of Rule 23—i.e., on a non-opt-out-basis—and his opinion stressed that the mere "availability of potential damages alone does not automatically require certification under Rule 23(b)(3)"—i.e., with an opt-out right.
Nevertheless, the Delaware Supreme Court did conclude that the Court of Chancery abused its discretion by refusing to allow BVF to opt out of the non-opt-out class in order to pursue its own individual damages action. Despite the absence of any textual basis in the class certification rule or other statute, the Delaware Supreme Court concluded that "the Court of Chancery has the discretionary power to grant opt-out rights to members of a [non-opt-out] class when fairness and equity demand it." Here, though the defendants argued strenuously that they only agreed to settle the case in exchange for the "complete peace" afforded by a non-opt-out class settlement, the court held that this interest was "outweighed by the due process concerns."
The Delaware Supreme Court seemed particularly troubled because by the time the settlement came to the Court of Chancery for approval, the only claims that remained to be released were those for monetary damages; the other claims—those seeking to stop the merger—were moot, as the merger already had been consummated. The court concluded that this, combined with other "facts and circumstances" such as a "barely adequate class representative" and an objector who was "a significant shareholder prepared independently to prosecute a clearly identified and supportable claim for substantial money damages," was enough to merit an exception to the non-opt-out class. Consequently, the court held that BVF must be permitted to pursue its individual claims.