Beyond Approval: The Role of the Delaware Court of Chancery in Settlements of Fiduciary Litigation

Gilda Sophie Prestipino (Stanford Law School)

Abstract

Settlements of corporate fiduciary disputes expose shareholders to a “dual disloyalty” risk posed by potentially unfaithful corporate managers and plaintiffs’ attorneys. The Delaware Court of Chancery is tasked with the review of proposed settlements to determine their intrinsic fairness. While existing scholarship predominantly focuses on the low settlement denial rate and depicts the Court as a passive arbiter merely endorsing party-crafted agreements, this Article uncovers a more dynamic reality. Using a comprehensive hand-collected data set of all fiduciary duty lawsuits filed during the 2013-2023 decade, I track the outcome of over 2,700 suits. Analyzing more than 300 settlements and manually reviewing 120 transcripts of settlement hearings, my study reveals the Court’s active role in monitoring release clauses, adjusting attorneys’ fees, and addressing systemic distortions that have surfaced in litigation. By extending the focus of analysis beyond the settlement approval rate, this Article challenges the prevailing scholarly views and documents the Court’s critical function as a gatekeeper in fiduciary litigation settlements.