Shearman & Sterling LLP | M&A and Corporate Governance Litigation Blog | Delaware Chancery Court Rejects Post-Closing Challenge To Merger Approved By Disinterested Stockholders In Fully-Informed And Uncoerced Vote<br >  
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  • Delaware Chancery Court Rejects Post-Closing Challenge To Merger Approved By Disinterested Stockholders In Fully-Informed And Uncoerced Vote
     

    01/16/2017

    On January 5, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed a breach of fiduciary duty suit brought by a former shareholder against the eight members of the board of directors of Solera Holdings, Inc. (“Solera”) that approved a go-private merger with an affiliate of Vista Equity Partners (“Vista”).  In re Solera Holdings, Inc. Stockholder Litig., C.A. No. 11524-CB (Del. Ch. Jan. 5, 2017).  In doing so, Chancellor Bouchard relied on the doctrine set forth in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), and applied the business judgment rule to the directors’ decision because the merger—which at the time of suit had already closed—had been approved by a disinterested majority of Solera’s stockholders in “a fully-informed and uncoerced vote.”

    On September 12, 2015, after a sale process supervised by a special committee, the eight defendant directors—seven of whom were outside directors—approved the merger whereby an affiliate of Vista would acquire Solera for $55.85 per share in cash.  On November 5, 2015, finding that claims in a prior complaint “were not colorable,” the Court denied motions seeking to enjoin the consummation of the merger.  On December 8, 2015, Solera’s stockholders approved the merger, which closed in March 2016.
     

    Later that month, plaintiff filed an amended complaint asserting a single claim for breach of fiduciary duty against the directors.  Plaintiff did not argue that the Court should apply the entire fairness standard but did contend that the sale process and decision to approve the merger called for enhanced scrutiny under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 182 (Del. 1986) and its progeny.  
     

    Chancellor Bouchard, however, determined that the Delaware Supreme Court’s decision in Corwin mandated the application of the business judgment rule where—as here—the Court was faced with a money damages claim in the post-closing context and the transaction was “approved by a fully-informed, uncoerced vote of the disinterested stockholders.”  Corwin, 125 A.3d at 308-09.  Accordingly, because “plaintiff [did] not assert that the board’s decision to approve the [m]erger amounted to waste, the [c]omplaint must be dismissed.”
     

    Notably, in making the dispositive threshold assessment as to whether the stockholder vote was fully-informed, Chancellor Bouchard concluded that a plaintiff has the burden to plead disclosure deficiencies.  Otherwise, according to the Court, “it would create an unworkable standard, putting a [defendant] in the proverbially impossible position of proving a negative.”  In this case, Chancellor Bouchard found that plaintiff failed to plead sufficiently any material disclosure deficiencies.

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