In 2016, the Delaware Court of Chancery held in In re Trulia Inc. Stockholder Litigation that what it called “disclosure settlements”—settlements in which a class of stockholders solely received supplemental proxy disclosures in exchange for a classwide release of claims—“would be met with continued disfavor unless the supplemental disclosures address a plainly material misrepresentation or omission.” The Trulia court sought to address the inherent difficulty of quantifying the often theoretical benefits that disclosure-only settlements purported to provide by applying a “plainly material” standard that eliminated the need for future decisions to make close materiality calls.
Today, a new species of litigation—which we call “foot fault litigation”—is presenting the same core problem as the pre-Trulia disclosure settlements and warrants a similar judicial solution. Foot fault litigation involves challenges to corporate acts or provisions of organizational documents premised on alleged technical violations of the certificate of incorporation, bylaws, or Delaware General Corporation Law (DGCL). Recent examples of this type of litigation include: (1) challenges to disclosures regarding treatment of broker non-votes in routine annual meeting proxy statements; (2) challenges to stockholder meeting notices sent more than 60 days before the meeting date; and (3) facial challenges to bylaw or contractual provisions that have neither been used nor proposed to be used (for example, a provision in a rights plan stating that certain determinations of the board are “conclusive and binding”) or that are invalid under Delaware law or binding judicial precedent (for example, a bylaw provision conflicting with a charter provision). In each instance, while there could be some benefit associated with addressing these types of issues, the magnitude of that benefit is often difficult to quantify with precision. The Court of Chancery addressed an analogous valuation difficulty in Trulia. There, the court identified three basic factors indicating that the non-monetary benefits conferred upon stockholders in that case and others (i.e., supplemental disclosures) were of dubious value.
