In a recent opinion in In re SS&C Technologies, Vice Chancellor Lamb refuses to approve a proposed settlement of claims challenging a management buy-out led by Carlyle. This fascinating opinion demonstrates that the courts will not hesitate to reject settlements where plaintiffs’ counsel have been dilatory in exploring the merits of their claims–and, perhaps more importantly, raises a host of interesting issues about management’s role in soliciting buyouts from private-equity firms.

SS&C Technologies CEO William Stone approached Carlyle in 2005 to discuss a potential deal. Carlyle eventually proposed a cash-out merger in which Stone would receive, among other things, cash proceeds of more than $72 million. Shareholders sued; their lawyers concluded that the proxy materials related to the transaction were inadequate, and the company agreed to make more extensive disclosures in a supplemental proxy. Without presenting these terms to the court, the company simply mailed the new proxy and closed the transaction.

The Vice Chancellor refuses to approve the settlement, in part because the parties settled the claims, and closed the transaction, without so much as notice to the court. Indeed, the Vice Chancellor explains, the parties sought approval of the settlement a year after having closed the deal. The court is clearly troubled by the implication of such an untimely presentation of the terms–that is, that the court was a mere rubber stamp for the parties’ agreed-upon (and already-performed!) terms.

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