For decades, corporate merger and acquisition deals have been plagued by meritless claims asserting, typically, that the companies and their officers and directors have provided insufficient disclosures. Courts have sought to crack down on these lawsuits, but—as in the game of whack-a-mole—the plaintiffs bringing these lawsuits have adjusted their tactics to avoid the judicially imposed barriers.

Defendants and courts pulled unwillingly into this game just received a substantial assist from the Seventh Circuit in opposing efforts to demand mootness fees related to merger disclosures. Judge Frank Easterbrook’s opinion for the court in Alcarez v. Akorn, Inc. might even mark the beginning of the end for the practice of paying fees to plaintiffs’ counsel for dismissing certain insufficient-disclosure claims under the federal securities laws, which has received substantial criticism in the courts and academic circles. This article reviews the evolution of mootness fees and then considers whether the Akorn opinion opens a major new phase in that evolution, as the decision concludes that court review of the suit’s propriety under the Private Securities Litigation Reform Act (“PSLRA”) and Federal Rule of Civil Procedure 11 is required for both individual stockholder actions—the current predominant practice—and purported stockholder class actions, like those at issue in the Akorn opinion. No matter what the next phase brings, Akorn gives merger-litigation defendants and companies that receive disclosure-related demand letters more leverage to refuse to pay mootness fees.

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