The Two Business-Day Deadline: How Delaware Chancery Procedure Can Deter Stockholder Objectors
The pending settlement in In re Santander Consumer Holdings Inc. Stockholder Litigation, C.A. No. 2022-0689-LWW, set to be heard on December 17 in Wilmington, provides a perfect example of how Court of Chancery procedure may deter stockholders from objecting to questionable settlements.? The deal not only involves a mammoth $1.65 million “incentive award” to the lead plaintiffs—waving a blazing red flag—but also serves as a master class in how to set hurdles for stockholders who have yet to appear.?
The parties filed their settlement on October 14, giving plaintiffs at least a month to draft their papers and figure out what, if anything, might be confidential.? On November 15, plaintiffs filed an opening brief under seal, preventing stockholders from viewing it. Indeed, even though some supporting papers were filed publicly, they did not appear on the court docket until November 18.
Objections are due 15 calendar days prior to the settlement hearing:? December 2.? Even without the confidential filing process, a seven business-day deadline over a holiday weekend is unnecessarily brutal. Under recent changes to Court of Chancery Rule 5.1, however, the parties have 5 business days to designate confidential information and an additional day to file a public version, meaning that the parties could wait until close-of-business on November 25 to file something stockholders can read. Hopefully they act sooner, but if they don't, it will leave essentially two business days to digest and respond to hundreds of pages of briefing and ancillary documents.? While tight objection deadlines are the norm in Delaware, this is the shortest window I’ve ever seen.? Had the Court appointed a guardian ad litem or amicus to represent absent stockholders when this schedule was proposed, I cannot imagine any competent attorney consenting to it.?
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But there’s more!? The Court of Chancery generally encourages electronic filing and most papers need only be served on local counsel.? A Santander objector, however, must also serve New York counsel by email and hard copy delivery, both of which must arrive by December 2.? That's why I describe this as a two business-day deadline: while objectors would technically have November 26, 27, and December 2 (and the holiday) to work on a brief, the practicality of organizing overnight delivery, or printing and arranging for hand delivery in New York, effectively renders the final day useless.
This schedule deviates from the model form of order in the Court of Chancery guidelines, which uses business days to set deadlines and permits electronic service on the settling parties. If anyone ever explained why the deviation is necessary, I cannot find it in the record.
Yet these requirements aren’t options:? they’re enshrined in the Court of Chancery’s scheduling order and non-compliant stockholders "waive[] and forfeit[]" their right to object.? When the settlement is presented, I’m sure that the plaintiffs will tout the absence of objecting stockholders as evidence that the settlement is fair. The process above does not sound fair to me, but I will be surprised if any attorney takes up the case and burns a holiday weekend to object to it. (If someone does, I pity the associates and paralegals tasked with the work. Save them some leftovers.)? I certainly won’t be entering an appearance.
Founder at Margrave Law LLC
3 个月Unsurprisingly, no objections appear on the Santander docket. If there's a siler lining, the case did inspire me to start formally collecting data on this problem. https://docs.google.com/spreadsheets/d/1K3BfkVY8XQ78QBjgslI9nrit7U8cNmKjOzAm08LeFX4/edit?usp=sharing
Not posting as a Vice Chancellor at Court of Chancery of the State of Delaware
3 个月Unfortunately, judges already working 60-70 hours per week don't always have the time to review the schedule that the parties have submitted, map it onto the calendar, and determine independently whether it provides fair deadlines for objections. This is an area where judges often rely on counsel to propose a schedule, taking into account precedent, general practice, and the facts of the case. The Court did beef up the procedural requirements for representative action settlements in the recently renovated Rules 23 and 23.1. Those amendments did not spell out timelines because of a desire to preserve flexibility for practitioners to address individual cases. I don't know anything specific about this case other than what you have written. I empathize with your points, but I suspect the criticisms would be better leveled at the parties rather than at a busy Chancery judge. These are, of course, my personal views.