'No Better Than a Racket'—Seventh Circuit Critical of Mootness Fees for Merger Disclosures
Judge Frank Easterbrook, disenchanted with the current "federal practice" of plaintiffs attorneys extorting fees in disclosure cases without conferring a meaningful benefit on stockholders, penned the opinion for a two-judge panel rejecting such fee agreements and empowering shareholders and federal courts alike to scrutinize these fees going forward.
May 28, 2024 at 11:21 AM
6 minute read
This April, the U.S. Court of Appeals for the Seventh Circuit took aim at what are typically referred to as "mootness fees" in Alcarez v. Acorn, 99 F.4th 368 (7th Cir. 2024). Mootness fees arise when companies are sued for allegedly incomplete corporate disclosures, most often in the context of proposed or pending mergers. In response to these lawsuits, companies agree with plaintiffs counsel to make additional disclosures, thus mooting the plaintiffs' claims. They also agree to pay a fee to plaintiffs counsel for their garnering a supposed benefit for the class/shareholders. Judge Frank Easterbrook, disenchanted with the current "federal practice" of plaintiffs attorneys extorting fees in disclosure cases without conferring a meaningful benefit on stockholders, penned the opinion for a two-judge panel rejecting such fee agreements and empowering shareholders and federal courts alike to scrutinize these fees going forward.
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