The Problem of Multi-Jurisdictional M & A Litigation

Recent Chancery Decision Highlights Problem of Multi-Jurisdictional M & A Litigation

By Sean Carnathan

It has become as predictable as the sun rising that whenever a significant merger is announced, there is a race to the courthouse by plaintiffs’ lawyers to challenge that merger, often in different states. The problem has grown in the past several years and is starting to get a lot of attention from courts and commentators. A recent decision by Chancellor Chandler (who will retire June 17, 2011), Allion Healthcare, Inc. Shareholders Litigation, discusses the problem.

“Judges, defense counsel, and the plaintiffs’ bar are now routinely confronted with [multi-forum deal litigation] and have yet to come up with a workable solution.” Potential problems include not only waste of private and judicial resources, but also a risk of inconsistent decisions if more than one jurisdiction decides the case. The forum shopping issues are complex too. Plaintiffs may look for the forum where the judge seems most likely to approve their settlement. Defense counsel may try to favor the weakest plaintiffs’ counsel (known as “pilgrims” because they are early settlers) to get the best settlement. Even if a settlement is approved, plaintiffs counsel from other jurisdictions may oppose it in order to secure their fees.

In a footnote, Chancellor Chandler offered his recommendation for how to handle the problem:

“Defense counsel should file motions in both (or however many) jurisdictions where plaintiffs have filed suit, explicitly asking the judges in each jurisdiction to confer with one another and agree upon where the case should go forward.” . . . This would be . . . one (if not the most) efficient and pragmatic method to deal with this increasing problem. It is a method that has worked for me in every instance where it has been tried.”

Interesting idea.