Delaware Chancery Court Examines Mootness Procedural Issue in Class Action

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By Michael Greene

March 12 — The Delaware Chancery Court March 12 determined that a hearing on the question of mootness was not required before the court can enter a stipulated order dismissing claims involving a class action lawsuit.

The parties in a lawsuit involving the merger between SynQor Inc. and an entity owned by the members of the company's management asked the chancery court to enter a stipulation and order approving notice to purported class members that the plaintiffs' disclosure claims have became moot and to schedule a hearing for the plaintiffs' motion for attorneys' fees.

However, Vice Chancellor J. Travis Laster opined that the order providing for notice did not need to contemplate a hearing “because the question of mootness and the propriety of the action taken to moot the claims or the payment of the fee can be challenged in a later case.”

“The plaintiffs do not dispute that their disclosure claims are moot, and the parties have agreed on the amount of a fee,” the court continued. “A hearing is not required on either issue, but notice must be provided to the former minority stockholders of the Company who were cashed out in the merger and who comprised the members of the putative class.”

Hearing Not Required

Vice Chancellor Laster noted when the parties in a class action or derivative lawsuit agree that the defendants have taken actions to render the lawsuit moot and the defendants agree to pay the plaintiffs' counsel fees, the procedure set forth in the chancery court's In re Advanced Mammography Systems Inc. Shareholder Litigation case comes into play.

The Advanced Mammography decision indicated that notice and a hearing on the question of mootness should be held before the court dismisses such claims in order to give other stockholders the opportunity to argue that the claims have not become moot or that the defendant acted wrongfully in mooting the action.

Laster opined that Chancellor Andre G. Bouchard's recent decision—In re Zalicus Inc. Stockholders Litigation—streamlined the Advanced Mammography procedure “by recognizing that a different stockholder can contend in a subsequent action that either (i) the claims in the original case had not been rendered moot or (ii) the action taken to moot the claims or the fee paid was unwarranted.”

Accordingly, he found that “[t]here is no need to keep the original case open so that a hearing can be held on those issues because they can be addressed, if necessary, in a future case.”

Notice Still Required

However, Vice Chancellor Laster noted that notice is still required if a representative seeks to dismiss a class or derivative lawsuit, and a mootness fee is paid to the plaintiffs' attorneys.

“Notice is necessary so that the members of the putative class will know what has taken place and can respond as they see fit,” he wrote.

Here, the court determined that notice must be provided to the former minority stockholders of the company who were cashed out in the merger and not a wider range of parties because the party paying the fee is a private entity owned by individual defendants.

Accordingly, Vice Chancellor Laster directed the parties to submit a revised form of stipulated order.

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