Case Study
September 8, 2017

Setting New Standards

Before Trulia’s $3.5 billion merger with Zillow could be completed, the company had to overcome shareholder class action lawsuits. In representing Trulia, Goodwin’s litigation team not only persuaded plaintiffs to drop their case but obtained a ground-breaking ruling from the Delaware Court of Chancery, which severely limited pre-merger disclosure challenges and settlements based on immaterial disclosures.


Soon after leading online residential real estate sites Trulia and Zillow announced their merger plans, four Trulia stockholders filed nearly identical complaints in Delaware and California state courts alleging Trulia’s board had breached their fiduciary duties. The pending litigation had the potential to disrupt or delay the deal, so the parties reached an agreement-in-principle to settle rather than proceed to trial, a practice that had become widespread.


Goodwin had been representing Trulia throughout the transaction with Zillow, so when the merger was challenged in court, the firm’s litigation team stepped in and began preparing its case. “Historically, plaintiffs’ lawyers had extracted a ‘merger tax’ by threatening to enjoin or stop a deal, and paying attorneys’ fees as part of the settlement was frequently cheaper than winning in court,” said Deborah Birnbach, a securities litigation partner at Goodwin and counsel to Trulia and its Board. Goodwin was particularly well positioned to fight off the challenge because of its experienced, interdisciplinary transaction and litigation teams. “Litigators are on the deal from the get-go and our integrated deal team is what makes us successful,” Birnbach said. Michael T. Jones, a Goodwin securities litigation partner, led the oral argument and negotiations with plaintiffs for the team.


In his precedent-setting ruling, Delaware Chancellor Andre G. Bouchard essentially decided “enough is enough” of the prior practice of approving settlements based on immaterial disclosures. “If approved, the settlement will not provide Trulia stockholders with any economic benefits,” Chancellor Bouchard wrote. “The only money that would change hands is the payment of a fee to plaintiffs’ counsel.” He went on to rule that “disclosure settlements are likely to be met with continued disfavor in the future unless the supplemental disclosures address a plainly material misrepresentation or omission.” Since the Trulia ruling, the number of such state court M&A suits has dropped markedly in Delaware and in other jurisdictions that have chosen to follow Delaware’s example.