Delaware Court Of Chancery Sustains Breach Of Fiduciary Duty Claims Against Target’s CEO And Aiding And Abetting Claims Against Target’s Financial Advisor And Buyer
On January 29, 2021, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery denied in part a motion to dismiss class action claims for breach of fiduciary duty against the CEO and Chairman of Presidio, Inc. (“Presidio”), its directors, and its controlling stockholder, as well as aiding and abetting breach of fiduciary duty against its financial advisor and BC Partners Advisors LP (“BCP”). The suit was brought by a former Presidio stockholder in connection with BCP’s 2019 acquisition of Presidio. Firefighters’ Pension Sys. of the City of Kansas City, Missouri Trust v. Presidio, Inc., C.A. No. 2019-0839-JTL, 2021 WL 298141 (Del. Ch. Jan. 29, 2021). The Court found that plaintiff adequately alleged that Presidio’s financial advisor and CEO “steered the sale process” toward a bidder who made an inferior offer, but that related claims against the board and controlling stockholder must be dismissed for failure to plead non-exculpated and money damages claims.
Plaintiff alleged that Presidio’s CEO, directors, and controlling stockholder breached their fiduciary duties by approving a merger with BCP when a competing bidder made a higher offer and by failing to make adequate disclosures to stockholders. Plaintiff claimed that the CEO favored a deal with BCP because BCP promised to retain company management, while the competing bidder did not. Plaintiff also asserted that Presidio’s financial advisor tipped BCP about the competing bid, enabling BCP to bid slightly higher to increase pressure, and thereby aiding and abetting the fiduciary breaches.
The Court first addressed the applicable standard of review, holding that the complaint’s allegations supported a reasonable inference that the Board failed to act within the range of reasonableness under enhanced scrutiny. However, the Court found that plaintiff failed to plead non-exculpated claims against the directors, as the factual allegations did not give rise to any inference that the directors acted in bad faith. As to the controlling stockholder, the Court held that its interests were presumptively aligned with the unaffiliated stockholders, and that the complaint otherwise failed to plead that its actions were grossly negligent or reckless. The Court, moreover, found that the controlling stockholder did not have any independent duty of disclosure because it was unconflicted in the transaction.
The Court determined that the complaint adequately alleged that Presidio’s CEO was self-interested in the transaction given BCP’s promise of post-merger employment, which was to be accompanied by a lucrative compensation package. The Court also sustained allegations that Presidio’s CEO knew that Presidio’s financial advisor tipped BCP and further breached his duty of disclosure by failing to disclose that information to stockholders. The Court found the allegations against Presidio’s financial advisor supported an inference (at least at the pleading stage) that its failure to inform the board of the tip to BCP created an “informational vacuum” that caused the board to breach its duties. As to BCP, the Court noted that while it was “rare” for a third-party bidder to face a viable aiding-and-abetting claim, plaintiff here pled sufficient facts to infer that BCP knew the tip was wrong, which supported a claim for aiding and abetting by civil conspiracy.