Background
Activision Blizzard stockholder Sjunde AP-Fonden brought a class action challenging Microsoft Corporation’s acquisition of Activision. The plaintiff alleged fiduciary-duty and Delaware statutory violations arising from the negotiation, approval, disclosure, and closing of the merger, including claims concerning dividend restrictions, a later agreement extending the merger deadline, and a dividend paid before closing. After nearly four years of extensive motion practice, discovery, and mediation, the parties agreed to a $250 million cash settlement.
A group of merger-arbitrage funds led by The Arbitrage Fund objected—not to the settlement amount, but to the release of federal securities claims the funds had filed in federal court on behalf of Activision stockholders who sold shares while the merger was pending. The funds argued that extinguishing those claims without separate compensation violated due process, showed that the plaintiff could not adequately represent sellers, and improperly intruded on the federal court’s jurisdiction.
The Court’s Holding
The Court of Chancery overruled the objection, certified the non-opt-out settlement class, and approved the settlement, release, and allocation plan. The court held that Delaware and federal precedent permit a state-court class settlement to release exclusively federal claims arising from the same operative facts when those claims have little or no value. Due process required adequate notice and an opportunity to be heard, not an opt-out right under these circumstances.
The court assessed the federal securities claims as having little or no settlement value because they faced substantial statute-of-limitations and loss-causation obstacles. It also found the plaintiff adequate to represent the class, noting that the plaintiff itself had sold Activision shares before closing and therefore could have pursued the same federal claims. The $250 million recovery was reasonable given the strength and risks of the surviving Delaware claims, the cost and delay of continued litigation, and defendants’ requirement of a global release.
The court awarded plaintiff’s counsel $60 million in attorneys’ fees and $447,680.66 in expenses. It found the fee reasonable under Delaware’s Sugarland factors, emphasizing the exceptional monetary recovery, counsel’s extensive contingent work, the litigation’s complexity, and the additional approximately $778 million dividend benefit that the litigation helped produce.
Key Takeaways
- A Delaware class settlement may release federal securities claims arising from the same operative facts even though those claims could not have been litigated in the Court of Chancery.
- Releasing such claims without separately allocating consideration can be fair when the claims have little or no value and the release is necessary to secure a substantial class recovery.
- The court found the federal claims weak because of serious limitations and loss-causation problems, including the difficulty of showing that alleged misstatements harmed investors who bought and sold after the merger announcement.
- The $250 million fund was the largest cash settlement in a Delaware Court of Chancery action challenging a third-party merger, supporting a $60 million fee award.
Why It Matters
The decision reinforces Delaware courts’ authority to approve broad, non-opt-out releases that provide defendants global peace, including releases covering overlapping federal securities claims. Objectors seeking to preserve separate federal litigation must show meaningful claim value, not merely that the claims fall within exclusive federal jurisdiction.
The opinion also illustrates how the Court of Chancery evaluates large common-fund fee requests. Exceptional results, extensive contingent litigation, and additional benefits caused by the lawsuit can justify an award near the upper end of the percentage range applicable when a case settles after substantial litigation but before trial.