The most detailed of the hearings took place before Vice Chancellor Laster in Acevedo v. Aeroflex Holding Corp., C.A. No. 7930-VCL (Del. Ch. Jul. 8, 2015) (TRANSCRIPT). The hearing was held to finalize a settlement of the claims brought over the acquisition of Aeroflex by Cobham plc (see the What's Market summary of the merger agreement). Counsel for the plaintiff class explained that the deal first raised questions because the target company was 76% owned by insiders and the board had seemingly ignored an indication of interest from a third-party bidder ("Company A"). Plaintiffs' counsel also described the initial appearance of a conflict of interest on the part of Goldman Sachs, whose affiliated fund was a stockholder in Aeroflex and whose investment bank acted as Aeroflex's financial advisor. Vice Chancellor Laster agreed with counsel that those were the types of facts that justify a motion to expedite, but that can be investigated in discovery to verify whether they pointed to misconduct by the board. However, counsel acknowledged that it had found during discovery that the board had acted reasonably and that there was little basis on which to press a claim of breach.

As part of a negotiated settlement with the defendants, the plaintiffs won three concessions:

In return, the defendants secured the plaintiffs' agreement to a release of all claims relating to the merger, while plaintiffs' counsel would be awarded a fee of $825,000.

The hearing transcript goes on to record a lengthy dialogue between Vice Chancellor Laster and plaintiffs' counsel on the question of whether the amendments to the merger agreement and the additional disclosure had any real value. At issue for Vice Chancellor Laster was that the reason Company A had never made an actual offer for Aeroflex was that it was party to an NDA that forbid it from doing so. In light of that fact (and accepting that the board of Aeroflex had not acted unreasonably by keeping the NDA in place), the modifications to the deal protections did nothing to make a topping bid more likely. In Vice Chancellor Laster's analogy, the changes were equivalent to bringing a car to a mechanic to fix a problem with the transmission, with the mechanic instead changing the oil and the air filter and demanding payment.

Plaintiffs' counsel argued that the changes had some incremental value higher than that, because they could have made it more likely that Company A would pursue a bid. To support its argument that the modifications had value, counsel relied on Vice Chancellor Laster's ruling in Compellent, in which the Vice Chancellor analyzed a set of deal protections and the changes made to them in order to assign a value to the plaintiffs' lawyers' success in negotiating a more neutral amended agreement (see Legal Update, In re Compellent Technologies: Delaware Chancery Court Analyzes Deal Protections to Determine Plaintiffs' Fee). Counsel added that its efforts must have produced real value, because the defendants were willing to settle and pay the attorney fee.

In his dialogue with plaintiffs' counsel, Vice Chancellor Laster rejected both the comparison to Compellent and the idea that the defendants' agreement to settle itself proved that the release and fee were appropriate. Immediately ruling from the bench, Vice Chancellor Laster announced a split with the court's own custom, memorialized in 1995 in Solomon v. Pathe Communications, to favor settlement where possible, and explained why newer scrutiny of settlements had become necessary.

Plaintiffs' counsel argued that the defendants' willingness to settle was a "testament" to counsel's efforts in the case and the possibility that the plaintiffs could win their claim. This argument elicited Vice Chancellor Laster's most pointed rebuttal, that the willingness to settle proved no more than the "holdup value of a lawsuit."

Much of the discussion surrounded the import of the decision in Compellent and whether counsel should be rewarded for the fact that it won modifications to the merger agreement's deal protections. Vice Chancellor Laster explained that Compellent does not stand for the proposition that all changes to deal-protection measures always have value; rather, each situation must be analyzed in context. In Compellent, the changes to the deal protections that plaintiff's counsel negotiated had the effect of making a topping bid more likely. In the case of Aeroflex, however, the changes added no value, because the impediment to Company A making a topping bid was the NDA to which it was bound. Because counsel had not negotiated anything to remove that obstacle, it had made a topping bid from Company A no more likely than it had been before. Moreover, the fact that the board acted reasonably throughout the process (as plaintiffs' counsel itself admitted) changed the 76%-insider-ownership issue from a potential area of conflict with the minority to a factor that favored the defendants, because the majority and minority's interests were aligned. This alignment of interests made the changes to the deal-protection measures and the supplemental disclosures even less meaningful.

In his ruling, Vice Chancellor Laster began by explaining why the Court of Chancery had for years approved these types of settlements "on a relatively routine basis." The settlements have generally granted a broad, class-wide release to anyone associated with the transaction, for anything brought up in the complaint (including the proxy statement and the public filings relating to the deal), in return for substantial attorneys' fees paid to plaintiffs' counsel. This scope of relief has been called "intergalactic" in scope by Chief Justice Strine. The settlement had generally been considered fair for the defendants, because it had been assumed for a long time—particularly after the Delaware Supreme Court's decision in Santa Fe—that defendants in Revlon cases would have a hard time satisfying the enhanced scrutiny standard of review (In re Santa Fe Pacific Corp. S'holder Litig., 669 A.2d 59 (Del. 1995)). For that reason, the Court of Chancery had acknowledged that once a claim survives a motion to dismiss, "economical, rational defendants […] will settle such claims, often for a peppercorn and a fee" (Solomon v. Pathe Commc'ns Corp., , at *4 (Del. Ch. Apr. 21, 1995), aff'd, 672 A.2d 35 (Del. 1996)).

Vice Chancellor Laster then described the ways in which the ensuing years have shown that the practice of routinely approving settlements has not struck the intended balance. As he explained:

With this view of the prevailing custom in mind, Vice Chancellor Laster rejected the proposed settlement and gave the parties three alternative options:

Vice Chancellor Laster acknowledged that plaintiffs' counsel would still be entitled to a fee on account of the fact that its modifications to the merger agreement and supplemental disclosures were what caused the underlying claims to become moot. However, he also estimated that the fee in any event would be rather small, given the insignificance of the disclosures and the fact that the modifications did not address the obstacle to a topping bid.