Sean Griffith was featured in a Law360 piece about his role in disclosures-only deal litigation settlements.
With one objection, Fordham University law professor Sean J. Griffith helped spark a chain reaction that led to the Delaware Chancery Court reining in ubiquitous disclosures-only deal litigation settlements long believed to offer little value to shareholders. Now he wants to take that fight nationwide.
This past summer, Griffith lodged an objection to one such settlement, in which breach of fiduciary duty claims are dropped in exchange for additional disclosures in proxy statements, six-figure attorneys’ fees and coveted liability releases that would shield a company’s brass from any future scrutiny over the deal. Griffith’s objection came in the challenge of Thoma Bravo LLC’s $3.6 billion takeover of Riverbed Technology Inc.
The professor, who is a Riverbed shareholder and has put together a portfolio of investments in companies whose settlements are in his target line, argued the disclosures offered in the settlement didn’t muster enough benefit to justify ending the litigation or the releases that could free executives from having to ever face fire over the deal.
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While Griffith was pleased that what he and others have called “garbage” settlements appear to have been stopped in their tracks in Delaware, the practice has seeped out to other jurisdictions, and the professor is taking the same tack to put an end to it once and for all.
“There’s an incentive here to play it quiet and settle in other jurisdictions,” Griffith told Law360. “We are playing whack-a-mole right now. The more states we can get to adopt the rule, their own version of Trulia, it looks like we can move to a national consensus.”
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In 2015, Griffith, along with Steven M. Davidoff of the University of California, Berkeley, School of Law and Jill E. Fisch of the University of Pennsylvania Law School, authored a paper, “Challenging the Peppercorn,” which took a look at roughly 400 shareholder settlements and tracked whether the ones that included additional disclosures won from court battles also had stockholders trying to vote them down.
“If the settlement has any value at all, you should be able to see that in the voting patterns,” Griffith told Law360. “We ran a large data set regression against 400 or so settlements, and found no statistically significant difference.”
After the paper was published, a Verizon shareholder contacted him for advice on objecting to a settlement in litigation over the Vodafone deal. He put him in touch with a law firm and ultimately the court in New York threw the settlement out for precisely the reasons the professor and his colleagues had articulated in their paper.
“I thought, ‘Holy cow! We can actually change the law,'” Griffith said. “As a law professor, you can sit in your office and reflect on structural changes in the law, but Verizon showed me there’s an opportunity to change it.”
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With the door in Delaware seemingly closed, other lawsuits are being lodged in business courts around the country or as proxy fraud claims in federal jurisdictions where the shackles of Trulia would not apply.
“It is a workaround by the plaintiff,” Griffith said. “You can settle it exactly like a disclosures-only settlement. It is the perfect substitute.”
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“I’m happy to have been one of the names that have been a part of this process,” Griffith said. “Two others’ names have been Strine and Laster. I see myself as pushing things they’ve said before and continuing ideas they’d started.”