American Bar Association | Litigation Section
Class Actions & Derivative Suits
Winter 2025, Vol. 35 No. 1
____________________________________________________________ _____________________________________________
____________________________________________________________ _____________________________________________
© 2025 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any
portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database
or retrieval system without the express written consent of the American Bar Association.
The End of “Tag-Along” Derivative Settlements? Reflections
on Recent Case Law from Delaware
By Justin D. Ward
Almost a decade ago, in the Trulia case, Chancellor Bouchard on the Delaware Court of
Chancery sounded the death knell for “disclosure-only” settlements of merger and acquisition
(M&A) litigation. In re Trulia, Inc. S’holder Litig., 129 A.3d 884 (Del. Ch. 2016). Before Trulia,
public companies that engaged in M&A activity would routinely settle stockholder litigation by
agreeing to make incremental deal disclosures in exchange for a class-wide release and paying a
fee to stockholders’ counsel. See id. at 891–92. In Trulia, Chancellor Bouchard concluded that
“far too often such litigation serves no useful purpose for stockholders.” Id. Not content to reject
the specific settlement before him, he made clear that such settlements would be subject to
“enhanced judicial scrutiny” going forward. Id. at 899. “Trulia effectively ripped out the final
page in the nearly empty playbook that the plaintiffs’ bar had used in pre-closing deal litigation.”
Anderson v. Magellan Health, Inc., 298 A.3d 734, 746–47 (Del. Ch. 2023).
The Court of Chancery may now be tolling the bell for settlements of a different kind:
settlements of the “tag-along” derivative cases that routinely follow in the wake of securities
class actions against public companies. Such derivative cases typically rely on the same
substantive allegations of fraud that form the basis for a federal securities fraud claim in the
parallel class action, claiming that officers and directors breached their fiduciary duties to the
company by committing the fraud or failing to prevent it. In 2023, about 40 percent of securities
class actions were accompanied by at least one such derivative case. See Cornerstone Research,
Securities Class Action Settlements: 2023 Review and Analysis 11 (2024). Such tag-along
derivative cases are often stayed while the underlying class action proceeds through a motion to
dismiss (and sometimes even after a motion to dismiss). See, e.g., Brenner v. Albrecht, 2012 WL
252286, at *6–7 (Del. Ch. Jan. 27, 2012) (finding “simultaneous prosecution of both actions
unduly complicated, inefficient, and unnecessary,” and therefore staying derivative action
beyond denial of motion to dismiss in parallel securities class action).
These tag-along derivative cases tend to produce tag-along settlements. If and when the class
action settles, the derivative cases often settle as well. These derivative settlements often do not
involve monetary consideration for the company. Instead, the company typically agrees to
implement corporate governance reforms, and derivative plaintiffs’ counsel then seek a fee on
the basis that these reforms confer a benefit on stockholders. See Cornerstone Research, supra, at
11.
The BioMarin Decision
