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An Introduction to the Law of Corporations: Cases and Materials, Fall 2017

Settlements and D&O Insurance

Few shareholder lawsuits end up going to trial. More often, they settle. The unique combination of incentives for directors, plaintiffs, and Directors & Officers insurance lead to this outcome.

The PAETEC opinion is the result of a settlement hearing where both the plaintiffs and the defendants come to court with a memorandum of understanding with respect to a settlement. Ordinarily, such proceedings are not all that exciting. In our adversarial system, when the plaintiff and defendant are in agreement there is little for a court to rule on except the amount of the fee for counsel if any.

Sometimes, a plaintiff who is not represented by the plaintiff's counsel may object to the proposed settlement for their own reasons. The presence of an “objector” can give the court an opportunity to weigh in on the substance of the voluntary settlement between the parties.