Delaware Judge Tells Class Settlement Objectors to Put Money Where Their Mouth Is

David Marcus of The Deal follows Delaware litigation, and he has another interesting article this week about a recent opinion by Vice Chancellor J. Travis Laster in the case of Forsythe v. ESC Fund Management Co. In that case, the parties sought judicial approval of a settlement in which the defendants agreed to pay $10.25 million in cash and not pursue claims for indemnification valued at approximately $3 million. The court found that the settlement fell "within a range of fairness, albeit at the low end." Certain objectors to the settlement, however, argued that the combined $13.25 million in consideration was inadequate. Faced with this objection, the court issued a creative ruling in which it approved the settlement

unless the objectors make the equivalent of a topping bid. If they post a secured bond or letter of credit for the benefit of the Fund for the full settlement consideration of $13.25 million, then they may take over the case. If they later lose or obtain less than the full settlement amount, the Fund will be able to draw on the security and be made whole. If the objectors achieve a greater recovery, then both they and the Fund will benefit. The objectors have sixty days from the date of this decision to make their election and post security. If they do not, then I will enter a final order approving the settlement and granting the fee award.

In short, as Jill Fisch, a professor at the University of Pennsylvania School of Law, states in Marcus' article, Vice Chancellor Laster "is essentially telling the plaintiffs to put their money where their mouth is." Doing so "largely resolves the problem of how you value the settlement," Fisch says, "because the existing proposed settlement provides a benchmark and the court has already done a preliminary assessment of its fairness."