Earlier this year, a Florida appeals court adopted the Trulia decision from Delaware – In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016) being a key Delaware case regarding the approval of merger related class action settlements. Before Trulia, class actions challenging mergers could (and often did) resolve via something called a “disclosure only settlement” – that is, the target company resolved the class action by making additional disclosures related to the deal but did not enhance the cash value consideration to stockholders. Trulia presented a new reality that such settlements would not be approved.  Many commentators saw this as a serious blow to class actions challenging mergers (the major form of pre-closing merger challenge).

As the authors of the linked article observe, post-Trulia, appraisal claims increased. While the linked article does not deal with the reason Trulia may be linked to increased appraisal, readers of this blog may see the connection immediately. Appraisal actions can be driven, in part, by a lack of information (or an asymmetry of information) between the target/acquirer and shareholders. Pre-Trulia, pre-closing class actions were more common; even if they did not result in increased consideration, the extra disclosures could provide additional information to the marketplace. And, for shareholders considering appraisal, an indicia whether pre-closing discovery yielded a ‘smoking gun’ – or additional information that showed the merger undervalued the target. The settlement also acted as a ‘bought release’ – releasing the breach of fiduciary claims (pre-closing!) for the class. But post-Trulia, as such cases have seen diminished use, shareholders are left with less information, classwide pre-closing releases are less prevalent, and thus post-closing remedies gain in importance: hence, appraisal.

Will Florida see an uptick in appraisal now that a Florida appeals courts has adopted Trulia? One would think it likely.

It’s a general truism that appraisal only directly benefits those who dissent and seek fair value for their shares.  But appraisal can also spur further litigation – especially when the result of the appraisal decision is a 100% premium over merger price. Such is the case with Shanda Games Limited. While our friends in Cayman have covered the Shanda Games Cayman appraisal, US litigation has followed.  In a class action complaint filed in the SDNY, ex-Shanda shareholders have alleged that the Shanda board made misrepresentations in the lead-up to the merger, relying in part on the findings of the Cayman courts in their determination of Shanda’s fair value.

While appraisal requires no showing of wrongdoing, a board could overstep in campaigning for (or perhaps, against) a merger – and thus lead to additional fiduciary duty or securities law liability. As we previously covered, appraisal can be linked to disclosure obligations, and the failure to make proper disclosure can lead to liability.