Corporate Governance

Scully v. Nighthawk: Reverse Auctions and A Vice Chancellor's Unlikely Efforts at Reform (Part 2)

By J Robert Brown Jr.

The Brief of Special Counsel contains a thoughtful and detailed discussion of the court's authority to approve a settlement as well as an analysis of the factors that should be used to determine whether a settlement was collusive.  But with regards to the concerns expressed at the December hearing, it provided little help to the Vice Chancellor. 

The Vice Chancellor was not asking about his right to approve the settlement.  He knew that he had little authority in that regard.  As he stated at the December hearing: 

• So if this settlement is presented in Arizona, that Court should absolutely rule in the first instance on whether to approve the settlement. And if that settlement is approved, again, there's no question that I will give full faith and credit to that order.

Instead, the questions posed to Special Counsel (they are here) seem more designed to determine whether, as the non-settlement judge, he had any room to explore what he thought might be a collusive settlement.  On that score, the Brief had a simple answer.  No.

The non-settling judge could seek to ensure that the settlement court had adequate information, see Brief ("the non-settlement forum should ensure that all courts involved in the multijurisdictional case are operating on the same information") and to make sure that there was an "open line of communication" between him/her and the settlement judge.  Finally, the Chancery Court could certainly "require the common parties to provide it with copies of the settlement documents filed in the settlement forum."  But beyond these ministerial functions, "[c]onsiderations of comity and judicial efficiency weigh in favor of the non-settlement forum not interfering with or second-guessing the consideration of a settlement by the settlement forum." 

Assuming that in fact, there is no room to tamper with a settlement, even when collusion is suspected (indeed proven), the Brief left unaddressed whether the Chancery Court could intervene at an earlier stage.  The settlement in Arizona has not yet been approved.  The Chancery Court is, therefore, in a position, for example, to enjoin the parties from going foward with the settlement.  That could, obviously, create a serious battle between states and courts but it is presumably within the authority of the court.  On that issue, the Brief is silent.   

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).