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Swomley v. Schlecht, C.A. No. 9355-VCL (Del. Ch. Mar. 12, 2015) (Laster, V.C.)

March 12, 2015

In this letter opinion, the Court of Chancery declined to enter a form of stipulated order that proposed providing notice to purported class members and a hearing on plaintiffs’ motion for attorneys’ fees and expenses prior to the dismissal of a putative class action and payment of a mootness fee to plaintiffs’ counsel. 

The Court explained that notice is “required if a representative plaintiff seeks to dismiss class or derivative claims and compensation in any form will pass directly or indirectly to the plaintiff or her attorney, as happens whenever a mootness fee is paid.”  This is due to concerns that there may have been a “surreptitious buyout in which the defendants take cosmetic action that does not actually moot the plaintiffs’ claims, but the plaintiffs go along in return for a fee,” or that “the defendants may have rendered the action moot, but somehow acted wrongfully in doing so.”  However, a hearing is not necessary “because the question of mootness and the propriety of the action taken to moot the claims or the payment of the fee can be challenged in a later case.  The court is not ruling on the question of mootness or the amount of the fee.” 

The Court instructed the parties that notice should be effected by mailing because the case involved a private corporation, SynQor, Inc., whose minority stockholders were squeezed out by management, and, as such, there did not appear to be a reasonable alternative means of providing notice, such as through some combination of a press release, a Form 8-K, and disclosure on the company’s and plaintiffs’ counsel’s websites.

The Court directed that the notice shall:  “describe clearly the nature of the claims that were rendered moot and how the action taken by the defendants rendered the claims moot”; “state the amount of the fee and identify specifically who is paying the fee”; “state that the court has not passed on the amount of the fee”; and “provide contact information for plaintiffs’ counsel and defense counsel so that they can be reached if anyone has questions or concerns.”

The Court advised the parties to submit a revised form of stipulated order.

The full opinion is available here