Enforcing the Bargain v. Materiality Requirement — The Future of Disclosure-Only Settlements Post-Trulia

In in re Trulia, Delaware Court of Chancery broke away from its tradition of routinely approving disclosure-only settlements and required disclosures to be material in order to cure the conflict of interest between plaintiff counsel and plaintiff class. I argue that fairness of settlement is the only standard in approving class action settlements and fairness will not be achieved by requiring materiality. Shareholders are legally entitled to all material information, as board’s fiduciary duty dictates. Thus, material disclosures are enforcement of a legal duty that is no consideration for the release of shareholder claims. On the other hand, fairness could be achieved by enforcing the bargain if bargaining process was conducted fairly and in good faith. The agency problem and the conflict of interest between plaintiff counsel and plaintiff class can be resolved by judicial assessment on whether there was adequate representation based on the effort of the plaintiff counsel and the appropriate attorney fee award according to the well-established three-scale system in quantifying the appropriate attorney fees. In addition, overbroad releases can be rescinded under the contract doctrines of fraud and unconscionability if such settlements were fraudulently induced or the release is overbroad compared to the benefit that the disclosures conveyed.