In this 2015 article from the Arizona Law Review, “Shareholder Litigation Without Class Actions,” Boston University Law School Professor David Webber imagines a “post-class-action landscape for shareholder litigation,” positing that the class action vehicle is becoming gutted by the courts and that mandatory arbitration provisions are undermining the class action device. In this so-called post-class-action environment, the author considers what devices shareholders would have at their disposal to protect themselves. He argues that “the decline of the transactional class action may be offset by, and may enhance, the rise of appraisal litigation, particularly of hedge fund participation in such litigation,” requiring a more active litigation strategy by fund managers than currently undertaken in furtherance of their fiduciary duties to their beneficiaries.
The article provides an interesting thought experiment and suggests that appraisal is a unique and narrow remedy that is highly individualized, as the right only accrues to the “no” voter and the resultant settlement or trial award does not benefit nonparticipating investors, unlike a class action. For instance, unlike the typical fiduciary duty class action accompanying M&A deals, there are no additional disclosures to other shareholders. In addition, as Professor Webber states on page 242, “[i]n the deal context, mandatory arbitration would make it impossible for plaintiffs to enjoin a shareholder meeting, which is the source of much of plaintiffs’ settlement leverage. This could then shift the focus of institutional investors to appraisal proceedings. Lately, such proceedings have attracted increased attention from investors, and the loss of a meaningful remedy under Revlon might force more institutions to seek out appraisal remedies, particularly in cases where institutional lead plaintiffs have had success in litigating transactional class actions in the past.”
In sum, if mandatory arbitration prohibits the injunction possibility, the institutional investor may be left solely with its appraisal rights. And in an interesting twist, the author suggests that if appraisal rights are circumscribed by the legislature, the dissenter is in effect left with no choice but to pursue the strike-suit strategy, which in turn may be further limited by an arbitration provision. In other words, if appraisal is the stockholder’s last hope, it should be left undisturbed and remain a robust tool.