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Florida Second DCA reverses trial court's approval of class action settlement in shareholder disclosure lawsuit for failure to assess value of settlement's supplemental disclosures

On July 13, 2018, in Griffith v. Quality Distribution et al, No. 2D17-3160, the Florida Second DCA reversed a trial court’s approval of a class action settlement. The case originated with a complaint filed by a shareholder alleging that the board members of a company being acquired in a proposed merger had breached their fiduciary duties to the company’s shareholders by engaging in a flawed sales process, agreeing to an inadequate sales price and failing to provide adequate information to shareholders about the proposed merger. A settlement eventually was reached whereby the company was required to provide more information to shareholders in advance of the shareholder vote to approve the merger. The trial court approved the settlement over the objections of one of the shareholders, resulting in the appeal.

The Second DCA reviewed the standards governing a trial court’s approval of a class action settlement, including a general requirement that the trial court find the agreement fair, reasonable and adequate. The Court then approvingly cited Grosso v. Fidelity National Title Insurance Co., 983 So. 2d 1165, 1170 (Fla. 3d DCA 2008) for a non-exhaustive list of relevant factors, including (1) the complexity and duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings; (4) the risk of establishing liability; (5) the risk of establishing damages; (6) the risk of maintaining a class action; (7) the ability of the defendant to withstand a greater judgment; (8) the reasonableness of the settlement in light of the best recovery; and (9) the range of reasonableness of the settlement in light of all the attendant risks of litigation. The Court also expressly adopted the reasoning employed by the Delaware Chancery Court in In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016), which more specifically applies to class action lawsuits involving shareholders disclosure issues in proposed mergers. The Chancery Court concluded in Trulia that disclosure settlements should be met with disfavor "unless the supplemental disclosures address a plainly material misrepresentation or omission and the subject matter of the proposed release is narrowly circumscribed to encompass nothing more than disclosure claims and fiduciary duty claims concerning the sale process, if the record shows that such claims have been investigated sufficiently." Id. at 898. The Second DCA concluded that the trial court had committed reversible error by failing to apply the first part of the Trulia test, assessing the value of the supplemental disclosures. The Second DCA noted that such a failure can lead to a meritless action being settled simply if the release is related to the claims.