Opinion ID: 1487782
Heading Depth: 1
Heading Rank: 4

Heading: Court Approval of Settlement

Text: Nottingham argues that the Court of Chancery committed reversible error in determining that the Settlement was fair, reasonable and adequate to protect the interests of the shareholders of Trans-Lux. In analyzing such arguments, this Court has always been assiduous in distinguishing between the function and legal obligations imposed upon the Court of Chancery in initially reviewing a proposed settlement and the appropriate appellate standards by which this Court must subsequently examine such a decision. Both sets of legal principles are well established. Rome v. Archer, Del.Supr., 197 A.2d 49, 53-54 (1964); Polk v. Good, Del.Supr., 507 A.2d 531, 535-36 (1986). We must be cognizant of them in this case. As a general proposition, Delaware law favors the voluntary settlement of contested issues. Rome v. Archer, 197 A.2d at 53. However, the settlement of a class action is unique in that, [b]ecause of the fiduciary character of a class action, the [C]ourt [of Chancery] must participate in the consummation of a settlement to the extent of determining its intrinsic fairness. Id. In determining the fairness of a settlement, the law does not require that the parties be given an opportunity to have a trial on the issues presented. Id. But, the approval of a class action settlement does require more than a cursory scrutiny of the issues presented by the Court of Chancery. Id. The balance between these two extremes, which the Court of Chancery must achieve, has been described as follows: Under Rome, the [C]ourt's function is to consider the nature of the [plaintiff's] claim, the possible defenses thereto, the legal and factual circumstances of the case, and then to apply its own business judgment in deciding whether the settlement is reasonable in light of these factors. Polk v. Good, 507 A.2d at 535 (citing Rome v. Archer, 197 A.2d at 53). If, in the light of these matters, the [C]ourt [of Chancery] approves the settlement as reasonable through the exercise of sound business judgment, its function as the so-called third party to the settlement has been discharged. Rome v. Archer, 197 A.2d at 53-54. In an appeal from the approval of a settlement of a class action, the function of this Court is more limited in its nature. Id. See also Polk v. Good, 507 A.2d at 536. We do not review the record to determine the intrinsic fairness of the settlement in light of our own business judgment. We review the record solely for the purpose of determining whether or not the Court of Chancery abused its discretion by the exercise of its business judgment. Polk v. Good, 507 A.2d at 536. Although that scope of review requires this Court to consider the entire record, if the findings and conclusions of the trial judge are supported by the record and the product of an orderly and logical deductive process, they will be accepted. Id. (citing Levitt v. Bouvier, Del.Supr., 287 A.2d 671, 673 (1972)). Therefore, for this Court to set aside a settlement which has been found by the Court of Chancery to be fair and reasonable, we must find that the evidence in the record is so strongly to the contrary of that conclusion, as to amount to an abuse of discretion. Rome v. Archer, 197 A.2d at 54. In examining the proposed settlement in this case, the Vice Chancellor applied the principles set forth in Rome to the facts that were before him. First, he examined the nature of the plaintiffs' claim and the result which would be achieved by the Settlement. In doing so, he stated: [A] good part of the Dana lawsuit is being settled on a hundred percent basis. That is to say, insofar as the Dana complaint attacks the charter amendments other than the Class B charter amendment and the action taken to effectuate it, those amendments will be invalidated by agreement of the defendants, and on that basis, at least, it wouldn't be inaccurate to say that the settlement would represent a complete victory for the Dana plaintiffs. The Vice Chancellor also noted that pursuant to the Settlement, the Trans-Lux stockholders will obtain relief in the form of a revised by-law, reducing the time required for notice of any nomination to the board of directors by the stockholders. The Vice Chancellor described the invalidation of the charter amendments and the revisions of the by-laws as therapeutic relief which will remove limitations which formerly existed on the ability of stockholders to directly influence the management of the corporation. The Vice Chancellor also found that the Settlement included a mechanism for providing some relief to stockholders who are dissatisfied with their investment in Trans-Lux. For the small stockholders, the odd-lot repurchase program was expanded from holders of twenty-five shares or fewer to include stockholders holding ninety-nine or fewer shares. For larger stockholders, the existing repurchase program was expanded by 200,000 shares. [31] Second, in applying the teachings of Rome, the Vice Chancellor evaluated the possible defenses to the plaintiffs' claims. The Vice Chancellor found that all of the claims raised by Dana and Nottingham faced a significant laches problem. Nevertheless, the Vice Chancellor specifically addressed the merits of Nottingham's nondisclosure claim concerning the sale of the theatres, which alleged a breach of the duty of disclosure under Basic, Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988). [32] Basic held that in the context of the purchase or sale of securities, (i.e., Securities and Exchange Commission Rule 10b-5) an omitted fact is material and should be disclosed if there is a substantial likelihood that its disclosure would be considered significant by a reasonable investor. Id. The Vice Chancellor noted that the success of a claim of nondisclosure based upon the holding in Basic necessarily presented a factual issue. The Vice Chancellor concluded that the facts in the record before him made the outcome of a nondisclosure claim under Basic relating to the theatre sales very uncertain. [33] Finally, in accordance with the procedures set forth in Rome, after considering the legal and factual circumstances of the case, the Vice Chancellor applied his own business judgment in deciding whether the settlement was reasonable. The Vice Chancellor concluded that while the relief provided by the Settlement was less than what was called for in the Dana complaint its value and its worth must be viewed in light of the strength of the claim that is being forgone in order to settle it. The Court concluded that the Settlement viewed as a whole provided fair consideration for the release of the plaintiffs' claims. [34] The reasonableness of a particular class action settlement is addressed to the discretion of the Court of Chancery, on a case by case basis, in light of all of the relevant circumstances. Evans v. Jeff D., 475 U.S. 717, 742, 106 S.Ct. 1531, 1545, 89 L.Ed.2d 747, reh'g denied, 476 U.S. 1179, 106 S.Ct. 2909, 90 L.Ed.2d 995 (1986). In this case, we find that the Vice Chancellor's findings of fact are supported by the record. We also find that the legal conclusions reached by the Vice Chancellor were based upon a proper application of well established principles of law. Consequently, we find no abuse of discretion in this case. Therefore, the decision to approve the Settlement will not be disturbed by this Court. Polk v. Good, 507 A.2d at 536-39.