By Reynolds Holding
NEW YORK, Feb 7 (Reuters Breakingviews) - The law of haste
makes waste should govern M&A litigation. Delaware judges often
warn attorneys to do their homework before suing. Now one group
of legal eagles is being grounded for trying to do just that.
The mixed message is undermining efforts to curb dubious suits
Almost every major transaction seems to be a target. State
cases soared from fewer than 50 in 1996 to more than 260 in
2010, a Lewis & Clark Law School study shows. Federal cases hit
43 last year after jumping six-fold in 2010, according to NERA
That has prompted judges in Delaware, the hot spot for deal
litigation, to try to weed out weak suits. One approach requires
that lawyers gather evidence by examining a company's corporate
books and records before filing so-called derivative cases. On
Tuesday Delaware Chancellor Leo Strine tossed out a suit
challenging Bank of America's mortgage practices because the
plaintiffs had failed to request the bank's records. Echoing
several of his colleagues, he called such a request "critical"
in "most circumstances."
Some attorneys may wonder whether he meant it. After
Freeport-McMoRan announced a $9 billion deal for McMoRan
Exploration and Plains Exploration on Dec. 5, shareholders of
each company filed dozens of suits. But two law firms - Grant &
Eisenhofer and Bernstein Litowitz - first demanded to see
Freeport's records. While they waited, a judge granted other
firms the lucrative right to lead the litigation, because they
had filed their lawsuits first - without bothering to request
The Bernstein and Grant & Eisenhofer lawyers were
understandably upset and on Monday asked the judge for
permission to challenge his decision in the Delaware Supreme
Court. He has yet to make a decision.
In justifying his call, the judge said no books-and-records
demand was necessary because the cases didn't technically claim
the Freeport board had breached its duty to oversee the company.
Besides, he noted, the deal was due to close in about two months
and time was running short.
Whether those explanations hold water should be up to the
Delaware Supreme Court to decide. Judges are right to punish a
rush to the courthouse. But they need to be consistent.
(The author is a Reuters Breakingviews columnist. The
opinions expressed are his own.)
Follow us on Twitter @ReutersLegal | Like us on Facebook