In yet another twist for the corporate legal world, the Chamber of Chancery has refuted a proposed derivative settlement, given that it felt largely precatory. Dealing a major blow to Knight v. Miller (C.A. No. 2021-0581-LWW), this judgment shows how seriously the courts are considering Rule 23.1(c) and the integral elements of settlement approval.
Derived from the case notes provided by Morris James LLP, the Court of Chancery Rule 23.1(c) necessitates the court’s express approval for any derivative litigation settlement. This litigation offered a rare instance where the Court denied approval for a settlement post-evaluation. The court concluded that the ‘give’, encompassing the essence of the settlement, did not fairly correspond with the ‘get’, or the closure of the litigation.
This unprecedented ruling raises a considerable question mark for legal professionals, particularly those working for leading corporations and law firms. It compels us all to glance once more at the components of derivative settlements, and to reconsider how Rule 23.1(c) is applied in practice. One can assume that upcoming derivative litigation cases will be privy to this judgment, with practitioners approaching settlements with renewed caution.”