Delaware Chancery Court: Before Class Action Dismissed, Must Provide Adequate Notice

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By Michael Greene

Jan. 19 — The Delaware Chancery Court Jan. 16 declined to enter a proposed order to close a class action lawsuit because the parties had not given adequate notice of a stipulated “mootness fee” to the putative class.

“Although it is true that the Court is not being asked to take any action with respect to the Fee Stipulation, I conclude that, under this Court’s precedents, notice of the Fee Stipulation nevertheless should be given to the putative class of [] stockholders before I may enter an order closing this case,” Chancellor Andre G. Bouchard opined.

Adequate Notice Required

After a stock-for-stock merger between Zalicus Inc. and Epirus Biopharmaceuticals Inc. closed, the plaintiffs contended that supplemental disclosures by Zalicus had mooted their breach of fiduciary duty claims. Subsequently, Zalicus agreed to pay the plaintiffs' counsel a “mootness fee” in the amount of $400,000, and the parties requested that the court close the case.

Chancellor Bouchard noted that in a recent Delaware decision—In re Astex Pharmaceuticals Inc. Shareholders Litigation—the chancery court declined to enter a proposed closure order because the putative class was not afforded notice of a stipulated mootness fee.

The plaintiffs attempted to distinguish Astex on the grounds that no class had been certified in this case.

However, Chancellor Bourchard opined that the existence of a certification order was irrelevant to the court's ruling in Astex.

“To my mind, the rationale underlying Astex, which is equally applicable here, is that notice is appropriate because it provides the information necessary for an interested person to object to the use of corporate funds, such as by ‘challeng[ing] the fee payment as waste in a separate litigation,' if the circumstances warrant,” he wrote.

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