“No Better than a Racket”: Seventh Circuit Cracks Down on Merger Objection Strike Suits

In a recent decision, the United States Court of Appeals for the Seventh Circuit outlined a mechanism by which shareholders can object to mootness fees paid to plaintiffs’ attorneys in merger objection suits. See Alcarez v. Akorn, Inc., 99 F.4th 368 (7th Cir. 2024). By allowing a shareholder to intervene and inviting the district court to scrutinize the propriety of the suit, the Seventh Circuit took a further step in its battle against the frivolous strike suits that have plagued M&A transactions for many years.

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Securities Litigation Against Life Sciences Companies: 2023

Securities class actions against life sciences companies are mostly second-order problems. The first-order problem is a business or regulatory setback that, when disclosed by the company or a third party, triggers a stock price decline. Following the decline, plaintiffs’ class-action attorneys search the company’s previous public statements and seek to identify inconsistencies between past positive comments and the current negative development. In most cases, plaintiffs’ attorneys then seek to show that any arguable inconsistency amounts to fraud — that is, they will claim that the earlier statement was knowingly or recklessly false or misleading. When the challenged statement appears in a public offering document (that is, a registration statement or prospectus), plaintiffs need only show that the statement was materially false or misleading, not that it was made with scienter or caused their losses.

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Securities Litigation Against Life Sciences Companies: Eleven Takeaways from 2022

Securities class actions against life sciences companies are generally second-order problems.  The first-order problem is a business or regulatory setback that, when disclosed by the company or a third party, is followed by a stock price drop.  Following the decline, plaintiffs’ class action attorneys search the company’s previous public statements for inconsistencies between past positive comments and the current negative development.  In most cases, plaintiffs’ attorneys then seek to show that any arguable inconsistency amounts to fraud—that is, they will claim that the earlier statement was knowingly or recklessly false or misleading.  When a company makes the challenged statement in a public offering document (that is, a registration statement or prospectus), plaintiffs need to show that the statement was materially false or misleading, but not that it was made with scienter, i.e., the requisite state of mind.

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Securities Litigation Against Life Sciences Companies: Eleven Takeaways from 2021

Securities class actions against life sciences companies are almost always second-order problems.  The first-order problem is a business or regulatory setback that, when disclosed by the company or a third party, is followed by a stock price drop.  Following the decline, plaintiffs’ class-action attorneys will search the company’s previous public statements in search of inconsistencies between past positive comments and the current negative development.  In most cases, plaintiffs’ attorneys will seek to show that any arguable inconsistency amounts to fraud—that is, they will claim that the earlier statement was knowingly or recklessly false or misleading.  Where a company makes the challenged statement in a public offering document (that is, a registration statement or prospectus), plaintiffs need only show that the statement was materially false or misleading, not that it was made with scienter, i.e., the requisite state of mind.

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Delaware Court Enjoins Shareholder Meeting for Disclosure Violations

The Delaware Chancery Court recently issued a rare preliminary injunction delaying the shareholder vote on a proposed merger between QAD, a cloud-based enterprise software company, and the private equity fund Thoma Bravo. The Court required additional disclosures to shareholders but stopped short of enjoining the deal entirely. The case provides useful guidance on conflicts-related disclosure where a controlling shareholder and minority shareholders are “competing” for consideration from a third-party acquirer. It also highlights Delaware’s reluctance to enjoin a transaction that offers shareholders a premium in the absence of a rival bidder, leaving post-closing damages claims as the sole remedy for shareholders who believe the deal involved contractual or fiduciary duty violations. (more…)