Corporate Governance

Scully v. Nighthawk: Reverse Auctions and A Vice Chancellor's Unlikely Efforts at Reform (Part 3)

By J Robert Brown Jr.

Special Counsel was also asked to apply any analysis to the circumstances in Nighthawk.  Special Counsel, therefore,  examined whether the evidence established that the settlement in the case was collusive.  The Brief concluded that it was not.  Foremost, the Brief relied on the typical nature of the process used in reaching the settlement.  As the Brief reasoned:  

• Special Counsel does not believe that the facts here lead to a conclusion that the settlement in this case was collusive. Settlements in multi-jurisdictional deal litigation are nearly always reached quickly—defendants trying to preserve their transactions need to resolve potential injunction motions before the deals close. The timing of settlement here was consistent with similar cases. The amount of fees ultimately agreed to was within the range of fees generally awarded in disclosure settlements. The amount of discovery provided to plaintiffs was similarly within the bounds of discovery often shared by defendants before settling these types of cases.

In other words, the evidence indicated that this case was handled in the usual fashion.  As such, the handling of the case did not suggest an absence of rigor.  Likewise, there was no affirmative evidence indicating collusion.  As the Brief explained: 

• there was no evidentiary support for the notion that the Delaware plaintiff's counsel were 'pushing too hard' and thereby forcing defendants to find a 'weaker' or more pliable opponent. Indeed, the Delaware plaintiff's counsel conceded that their own litigation position was weakened by their failure to seek expedition on their process claims; they did not press the claims that this Court suggested had merit.

The analysis seems correct.  In fact, there is no strong evidence indicating that counsel in Arizona and counsel in Delaware had significantly different views of the case.  Both brought a disclosure case and both presumably wanted to settle on that basis.  In other words, counsel in both states appear to have been of the same mind.  

What seems to have caused defendants to go to Arizona was not the desire for pliant counsel but, the facts suggest, the desire to avoid a judge who had already betrayed his leanings on the merits.   In other words, defendants weren't so much seeking different counsel as much as they were apparently seeking a different judge.  That issue, however, was not explored in the Brief.   

The only real discussion of the role played by the Vice Chancellor was a paragraph that indicated Special Counsel could feel his pain.  

• Special Counsel is, of course, very cognizant of the Court's strong dissatisfaction with the settlement process employed in this case and with counsel, as expressed by the Court during the December 21, 2010 hearing. Having devoted substantial attention to the matter in considering and ruling on the motion to expedite, the Court understandably was not happy that the parties chose to present their settlement to another court. Compounding the problem was the fact that the disclosure claims on which the proposed settlement was based were claims the Court believed to be 'not colorable.' The decision by counsel to settle in that manner understandably troubled the Court.

But his pain notwithstanding, it was not a basis for intervening into the settlement process. 

The primary materials in the case, including the report of the Special Counsel, can be found at the DU Corporate Governance web site.

Full post as published by The Race to the Bottom on March 15, 2011 (boomark / email).