Delaware Court Of Chancery Dismisses Breach Of Fiduciary Duty Claims Against Special Committee Defendants For Failure To Plead Breach Of Loyalty
M&A and Corporate Governance Litigation
This links to the home page
FILTERS
RECENT POSTS
Delaware Supreme Court Holds MFW Is Applicable To Controlling Stockholder Transactions Even Outside Of Freeze-Out Context
Delaware Requires Compliance With DGCL Provisions Governing Board Negotiation And Board And Stockholder Approval Requirements For Merger Agreements
Delaware Chancery Court Applies Entire Fairness To State Of Incorporation Conversions

  • Delaware Court Of Chancery Dismisses Breach Of Fiduciary Duty Claims Against Special Committee Defendants For Failure To Plead Breach Of Loyalty
     
    12/13/2022
    On November 30, 2022, Vice Chancellor Glasscock of the Delaware Court of Chancery granted a motion to dismiss claims asserted against directors who served as members of the special committee (the “Special Committee”) of Isramco Inc. (the “Company”) for failure to plead a breach of the duty of loyalty in connection with a take-private merger.  Ligos v. Tsuff, et. al., C.A., No. 2020-0435-SG (Del. Ct. Ch, Nov. 30, 2022).  Plaintiff asserted that the Special Committee lacked independence because it was selected by the Company’s controlling stockholder, who also allegedly controlled the company with whom the Company merged, Naptha Israel Petroleum Corporation Ltd. (the “Buyer”) and allegedly negotiated in bad faith.  Vice Chancellor Glasscock held that even with the “plaintiff-friendly inferences” required on a motion to dismiss, there was no reasonably conceivable basis for Plaintiff’s claims.

    Following receipt of a letter of interest in 2018 from the Buyer, the Company’s board formed the Special Committee to evaluate and negotiate the transaction.  After engaging an outside valuation firm, the Special Committee accepted an offer of $121.40 per share, even though the Company’s advisor valued the Company at $140.00 per share.  A majority of unaffiliated Company stockholders approved the merger, although the Court previously declined to dismiss claims challenging the transaction after concluding that Plaintiff adequately alleged that the vote may not have been fully informed.

    After concluding that the Company’s Certificate of Incorporation exculpated the Special Committee members from all claims other than for breach of the duty of loyalty, the Court held that Plaintiff failed to assert facts suggesting that any of the Special Committee Defendants were interested in the Transaction.  First, the Court rejected the notion that the mere presence of a controlling shareholder was sufficient, noting that the Special Committee members would cease to be directors after the merger closed.  The Court next concluded that Plaintiff failed to allege that any material or beneficial relationship existed between the controller and any Special Committee member.  Finally, the Court found that Plaintiff failed to meet the high pleading standard to allege bad-faith conduct, finding no indication of an “intentional dereliction of duty.”  Thus, even though the Court agreed that the final outcome in the transaction was “not great,” the Court found that the Special Committee Defendants had “acted vigorously” in negotiating the merger.
    CATEGORY: Fiduciary Duties

LINKS & DOWNLOADS