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  • Delaware Court Of Chancery Again Dismisses Aiding And Abetting Claims For Pleading Deficiencies
     
    07/23/2019

    On July 15, 2019, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery dismissed an aiding and abetting claim asserted against a private equity buyer and its principals in a stockholder class action involving breach of fiduciary duty claims against the former CEO of a technology company in connection with its take-private sale to the private equity buyer.  In re Xura Inc. Stockholder Litigation, C.A. No. 12698-VCS (Del. Ch. July 12, 2019).  As we discussed in a prior post, Vice Chancellor Slights declined to dismiss a different stockholder’s breach of fiduciary duty claims against the former CEO based on his allegedly self-interested participation in the merger, but the Court dismissed aiding and abetting claims asserted against the buyer and its principals.  In re Xura, Inc. Stockholder Litigation, C.A. No. 12698-VCS (Del. Ch. Dec. 11, 2018)Ten days after this opinion was issued, a different stockholder filed a “nearly identical” complaint—this time asserting class action claimsraising “the same theories of aiding and abetting” that the Court had dismissed just days earlier.  In a separate summary order, the Court denied the former CEO’s motion to dismiss this new complaint.  In this decision, the Court dismissed the aiding and abetting claims for the same reason it did so in the prior suit—the complaint failed to include “well-pled allegations that [the buyer] ‘knowingly participated’ in the … alleged breaches of fiduciary duty.”
  • Delaware Court Of Chancery Applies Corwin To Dismiss Breach Of Fiduciary Duty Claims, Finding Allegations Of A Controlling Stockholder Conflict Inadequately Pleaded
     
    04/09/2019
    On March 20, 2019, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed class action claims asserted by former shareholders of NCI, Inc. against its former directors for breach of fiduciary duty in connection with the company’s acquisition by affiliates of H.I.G. Capital, LLC in a tender offer followed by a merger.  
    English v. Narang, C.A. No. 2018-0221-AGB (Del. Ch. Mar. 20, 2019).  Plaintiffs alleged that the company’s founder, who held approximately 34% of the shares and controlled about 83.5% of the voting power, orchestrated a sale of the company at a discounted price to address a personal need for liquidity prompted by his retirement as the company’s CEO at age 73.  But the Court found that the complaint “contained no concrete facts from which it reasonably can be inferred that [the founder] had an exigent or immediate need for liquidity.”  Therefore, the Court applied Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), and dismissed the claims because a majority of NCI’s disinterested stockholders tendered their shares in an uncoerced and fully-informed tender offer.
  • Delaware Court Of Chancery Enjoins Stockholder Vote For Inadequate Disclosures
     
    03/26/2019

    On March 11, 2019, Vice Chancellor Kathaleen S. McCormick enjoined a stockholder vote to approve the proposed combination of Medley Management, Inc. (“Medley Management”) with two affiliates it advised, Medley Capital Corporation (“Medley Capital”) and Sierra Income Corporation (“Sierra”).  Medley Capital stockholders FrontFour Capital Group LLC and FrontFour Master Fund, Ltd. (together, “FrontFour”) sued to suspend the vote until competing offers were solicited and additional proxy disclosures were made.  Plaintiffs alleged that the merger was not entirely fair because the two controlling stockholders of Medley Management controlled the deal process, and the process and the terms were unfair to Medley Capital, and further claimed that the proxy made inadequate disclosures; plaintiffs also asserted an aiding and abetting claim against Sierra.  After expedited litigation and trial, the Court enjoined the vote, ruling that corrective disclosures were necessary but that a go-shop period could not be required because Sierra’s rights under the transaction agreements would be negatively impacted.
  • Delaware Court Of Chancery Finds That Equitable Defenses To Board Composition Can Be Litigated In A Section 225 Action And Rules Actions By Majority Stockholder Written Consent Effective Even Without Notice To Minority Stockholders
     
    01/08/2019

    On December 21, 2018, Vice Chancellor Morgan T. Zurn of the Delaware Court of Chancery denied plaintiff stockholder’s motion for summary judgment in an action to determine the board composition of SPAR Group, Inc. (“SGRP”) under 8 Del. C. § 255.  Brown v. Kellar, et al., C.A. No. 2018-0687-MTZ (Del. Ch. Dec. 21, 2018).  Plaintiff claimed that written consents delivered to the SGRP board by plaintiff and a fellow majority stockholder removed and replaced an incumbent director.  The defendant directors asserted that the consents were ineffective for two reasons:  (i) the majority stockholders were engaged in an inequitable scheme to divert corporate opportunities and entrench themselves as directors, and (ii) the company had not given notice of the written consents to minority stockholders.  The Court rejected plaintiff’s assertion that Delaware law prohibited the Court from considering the alleged inequitable conduct because it fell outside the proper scope of a § 225 action.  The Court also found, however, that the consents were effective upon delivery (unless inequitable conduct precluded replacement of the director) and ordered that trial proceed with respect to the equitable defenses raised by defendants.  
     
  • Delaware Court Of Chancery Holds That Concurrent Appraisal Action Does Not Preclude Post-Closing Fiduciary Duty Breach Claims
     
    12/18/2018

    On December 11, 2018, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery denied a motion to dismiss breach of fiduciary duty claims against the former CEO of a technology company (the “Company”) in connection with its take-private sale to a private equity firm.  In re Xura, Inc. Stockholder Litigation, C.A. No. 12698-VCS (Del. Ch. Dec. 11, 2018).  Plaintiff alleged that the CEO was conflicted by self-interest while he steered the Company into the transaction.  As a stockholder at the time of the transaction, plaintiff simultaneously pursued appraisal of its shares of the Company.  Defendant argued that plaintiff lacked standing to pursue breach of fiduciary duty claims in light of the pending appraisal petition and, in any event, the approval by the majority of the stockholders cleansed the transaction under Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015).  The Court, however, held that a plaintiff seeking appraisal can nevertheless maintain breach of fiduciary duty claims related to the same transaction and that the alleged omission from the proxy of various information material to the stockholder vote precluded the application of the Corwin doctrine at the pleading stage.
  • Delaware Court Of Chancery Declines To Dismiss Fiduciary Duty Breach Claims In Connection With Take-Private Acquisition Of Recently Delisted Company
     
    11/27/2018

    On November 20, 2018, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery denied a motion to dismiss a putative class action asserting claims for breach of fiduciary duty brought by former stockholders of Tangoe, Inc. (the “Company”) against former members of its board of directors in connection with the take-private acquisition of the Company by a private equity buyer group in June 2017.  In Re Tangoe, Inc. Stockholders Litigation, C.A. No. 2017-0650-JRS (Del Ch. Nov. 20, 2018).  Plaintiffs alleged that defendants recommended an ill-advised and self-interested sale while a restatement of audited financials was pending and following the NASDAQ delisting of the Company.  Defendants contended that they were entitled to business judgment rule deference under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015)—because a majority of stockholders tendered their shares—and that dismissal was also required because of an exculpatory charter provision pursuant to 8 Del. C. § 102(b)(7).  But the Court concluded that the alleged failures to provide adequate company financial information and to disclose the status of the restatement efforts precluded dismissal under Corwin.  The Court also found that plaintiffs adequately pled a non-exculpated claim for breach of the duty of loyalty, given the timing and structure of certain director compensation adjustments, which allegedly incentivized a change in control and supported an inference that defendants acted out of material self-interest.
  • Finding Disclosures Inadequate To Merit Application Of Corwin, Delaware Supreme Court Reverses Court of Chancery Dismissal Of Post-Closing Breach Of Fiduciary Duty Claims
     
    07/17/2018

    On July 9, 2018, the Delaware Supreme Court reversed and remanded a decision by the Delaware Court of Chancery to dismiss stockholder class claims for breach of fiduciary duty brought against the former directors of The Fresh Market (TFM) after its acquisition in a two-step take-private merger by affiliates of Apollo Global Management, LLC (“Apollo”).  Morrison v. Berry, No. 445, 2017 (Del. July 9, 2018).  As discussed in our prior post on this case, the Court of Chancery dismissed claims that the sale process undertaken by TFM was a “sham” designed by TFM’s founder to deliver the company into the hands of a favored suitor.  Specifically, the Court of Chancery concluded that the facts regarding the involvement of TFM’s founder with Apollo were adequately disclosed in connection with the tender offer—in which 68.2% of shares were tendered—and the deal was therefore subject to the deferential business judgment rule under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015).  Finding that the complaint adequately alleged several “materially incomplete and misleading” disclosures, the Delaware Supreme Court reversed.
  • Delaware Supreme Court Affirms Court Of Chancery, Finding That General Partner Complied With Obligations Under Limited Partnership Agreement
    06/19/2018
    On June 8, 2018, the Delaware Supreme Court affirmed the Delaware Court of Chancery’s dismissal of a putative class action challenging the merger of El Paso Pipeline Partners, L.P. (the “MLP”) with a subsidiary of its general partner, El Paso Pipeline GP Company, L.L.C. (the “GP”), all of which were controlled by defendant Kinder Morgan, Inc.

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  • Delaware Court Of Chancery Relies On Corwin To Dismiss Post-Closing Fiduciary Duty Claims After Finding Acquiror Was Not A Controlling Stockholder
     
    03/20/2018

    On March 9, 2018, Vice Chancellor Joseph R. Slights III, of the Delaware Court of Chancery, dismissed a stockholder class action complaint seeking damages for alleged breaches of fiduciary duty by directors of Rouse Properties Inc. (“Rouse”) and its 33.5% stockholder, Brookfield Asset Management, Inc. (“Brookfield”), arising out of Rouse’s merger with Brookfield in 2016. In Re Rouse Properties, Inc. Fiduciary Litigation, C.A. No. 12194-VCS (Del. Ch. Mar. 9, 2018). Plaintiffs, pre-merger stockholders of Rouse, alleged that breaches of fiduciary duty by a special committee of the Rouse board that negotiated the deal, and Brookfield, as an alleged controlling stockholder, led to a transaction that grossly undervalued Rouse. The Court found that the complaint did not come even “remotely close” to pleading that Brookfield exercised the “managerial clout and retributive power to infer actual control.” Concluding that Brookfield was not a controlling stockholder, the Court dismissed the breach of fiduciary duty claims against Brookfield and, in light of the approval of the deal by a majority of the disinterested stockholders, applied the business judgment rule in accordance with Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), to dismiss the claims against the special committee directors as well.

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  • Reinstating A Post-Closing Merger Challenge, Delaware Supreme Court Holds Views Expressed By Directors In Connection With A Transaction Vote Are Not Per Se Immaterial 
     
    02/27/2018

    On February 20, 2018, the Delaware Supreme Court, in an opinion by Chief Justice Leo E. Strine, Jr., reversed the dismissal of a suit brought by former stockholders of Diamond Resorts International (“Diamond”) challenging the company’s two-step cash-out merger.  Appel v. Berkman, No. 316, 2017 (Del. Feb. 20, 2018).  As discussed in our prior post on this case, the Delaware Court of Chancery dismissed plaintiffs’ breach of fiduciary duty claims because the disinterested stockholders of Diamond, who were “fully informed,” overwhelmingly accepted the tender offer.  In reaching that decision, the Court of Chancery found it immaterial that the proxy did not disclose that Diamond’s chairman—who abstained from the board vote on the deal—had expressed disappointment with the price and indicated that “it was not the right time to sell.”  Reversing and remanding, the Delaware Supreme Court held that when a board discloses its reasons for recommending a transaction, “the contrary view of an individual board member may be material.”  In this case, the Delaware Supreme Court concluded, the chairman’s expressed views regarding the wisdom of the sale were material and the omission rendered the proxy misleadingly incomplete.

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  • New York Court Denies Approval Of Disclosure-Only Settlement, Finding Supplemental Disclosures “Useless”
     
    02/21/2018

    On February 8, 2018, Justice Shirley Werner Kornreich of the New York Supreme Court denied a motion for final approval of a disclosure-only settlement in a class action suit brought by shareholders of Martin Marietta Materials, Inc. (“MMM”) regarding its acquisition of Texas Industries, Inc. (“TXI”).  City Trading Fund v. Nye, 2018 WL 792283 (N.Y. Sup. Ct., Feb. 8, 2018).  Plaintiff, which owned only ten shares in MMM, asserted breach of fiduciary duty claims and sought to enjoin the merger on the ground of inadequate disclosures in the proxy provided to shareholders.  The parties, however, reached a settlement, which required defendants to make certain “supplemental disclosures” and provided for the payment of $500,000 in attorneys’ fees to plaintiff’s counsel.  Justice Kornreich previously denied approval of the settlement, but that decision was reversed by the New York Supreme Court, Appellate Division and remanded for a fairness hearing.  City Trading Fund v. Nye, 144 A.D.3d 595, 21 (N.Y. App. Div. 2016).  Moreover, in the interim, the Appellate Division, in Gordon v. Verizon Communications, Inc., 148 A.D.3d 146 (N.Y. App. Div. 2017), adopted a more lenient approval standard for disclosure-only settlements than that followed recently by courts in Delaware and elsewhere.  Nevertheless, Justice Kornreich found the supplemental disclosures “utterly useless to the shareholders” and, therefore, declined to approve the settlement.

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  • Delaware Court Of Chancery Dismisses Breach Of Fiduciary Duty Claims In Connection With Two-Step Merger, Despite Finding Corwin Inapplicable
     
    12/12/2017

    ​On November 30, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed breach of fiduciary duty claims against the board of Opower, Inc. (“Opower”) in connection with Opower’s acquisition by Oracle Corporation (“Oracle”).  Van der Fluit v. Yates, C.A. No. 12553-VCMR (Del. Ch. Nov. 30, 2017).  The Court found that the failure to disclose that certain executives who received transaction-related benefits were the primary negotiators of the transaction constituted a material disclosure violation.  Therefore, the Court declined to rely on stockholder approval to cleanse the transaction under the doctrine of Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), because the tender was not fully informed.  Nevertheless, the Court granted defendants’ motion to dismiss, concluding that plaintiff had failed to plead a non-exculpated claim for breach of the duty of loyalty. 

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  • Delaware Court Of Chancery Ruling Provides Guidance On Attorney-Client Privilege Protection For Draft Stockholder Communications 
     
    11/28/2017

    ​At a recent hearing, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery provided guidance on the application of the attorney-client privilege to draft stockholder communications in the context of a stockholder class action involving claims for breach of fiduciary duty against the directors of Windstream Holdings, Inc. (“Windstream”).  Doppelt v. Windstream Holdings, Inc., C.A. No. 10629-VCS (Del. Ch. September 11, 2017) (Transcript).  During discovery, plaintiffs moved to compel the production of drafts of various documents related to communications with stockholders—including talking points, FAQs, and mailings drafted by the company in conjunction with proxy communication firms—which were withheld by defendants on the grounds of attorney-client privilege.  The Court determined that such drafts were not likely to be privileged in their entirety, but could be redacted to the extent they reflect legal advice from counsel, such as comments intended “to ensure that the company is complying with its legal obligations.”   

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  • Delaware Court Of Chancery Dismisses Derivative Action, Finding Demand Unexcused Because Plaintiff Did Not Plead Non-Exculpated Claims Against A Majority Of Directors
     
    11/14/2017

    On November 7, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery granted a motion to dismiss a derivative and putative class action brought by a minority stockholder of Erin Energy Corporation (“Erin”), challenging a series of transactions involving Erin, Allied Energy PLC (“Allied”)—an entity affiliated with Kase Lukman Lawal, Erin’s chairman, CEO, and controlling stockholder—and another party, Public Investment Corporation Limited (“PIC”).  Lenois v. Lawal, C.A. No. 11963 (Del. Ch. Nov. 7, 2017).  Plaintiff alleged that the CEO—who together with an affiliated entity (Allied’s parent company) controlled nearly 60% of Erin’s shares—effectively stood on all sides of the challenged transactions and negotiated in his own self-interest.  Plaintiff asserted derivative claims for breach of fiduciary duty against the CEO and the remaining directors.  The Court found that plaintiff adequately pleaded that the CEO acted in bad faith, but dismissed the derivative claims because the complaint “failed to plead non-exculpated claims against a majority of the Erin Board” and, thus, demand on the board was not excused.

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  • Delaware Chancery Court Dismisses Post-Closing Challenge To Two-Step Merger Under Corwin Finding Tendering Stockholders Were Fully Informed 
     
    07/18/2017

    On July 13, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed a former stockholder’s breach of fiduciary duty claims against the former directors of Diamond Resorts International (“Diamond”) and an aiding and abetting claim against Diamond’s financial advisor in connection with Apollo Global Management LLC’s (“Apollo”) acquisition of Diamond in a two-step merger under Section 251(h) of the Delaware General Corporation Law, 8 Del. C. § 251(h).  Appel v. Berkman, C.A. No. 12844-VCMR (Del. Ch. July 13, 2017).  Relying on Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015) and In re Volcano Corp. Stockholder Litigation, 143 A.3d 727 (Del. Ch. 2016), the Court held the merger was “cleanse[d]” because “the disinterested stockholders of Diamond were fully informed and uncoerced when they overwhelmingly accepted the tender offer.” 

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  • Delaware Chancery Court Dismisses Breach Of Fiduciary Duty And Quasi-Appraisal Claims Under Corwin 
     
    05/16/2017

    On May 11, 2017, Chancellor Bouchard of the Delaware Court of Chancery dismissed with prejudice a putative class action brought by stockholders of networking solutions company Cyan, Inc. (“Cyan”) against Cyan’s board, asserting a breach of fiduciary duty and “quasi-appraisal” claim in connection with Cyan’s merger with Ciena Corporation in a cash and stock transaction. In re Cyan, Inc. Stockholders Litigation, C.A. No. 11714-CB (Del. Ch. May 11, 2017).  Plaintiffs claimed that the board failed to disclose material information in the proxy statement, which allegedly prevented Cyan’s shareholders from determining whether to pursue appraisal rights.  The Court dismissed the claims, finding that:  (i) the business judgment rule applied because the merger consideration primarily consisted of stock in a publicly traded company and plaintiffs failed to plead a breach of the duty of loyalty; and (ii) in any event the proxy disclosures were sufficient to infer that the 98% stockholder approval of the merger was a fully informed vote, thereby precluding post-closing litigation under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304, 308-09 (Del. 2015).  The Court dismissed plaintiffs’ “quasi-appraisal” claim on the same grounds, observing that quasi-appraisal was merely a remedy for a disclosure claim and not a distinct cause of action.  

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  • Delaware Chancery Court Applies Corwin To Dismiss Post-Merger Fiduciary Duty Claim After Finding A Royalty Agreement Did Not Constitute An Unreasonable Deal Protection Device
     
    04/18/2017

    On April 13, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed a shareholder derivative suit alleging a breach of fiduciary duty against the directors of Paramount Gold and Silver Corp. (“Paramount”) in connection with Paramount’s merger with Coeur Mining, Inc. (“Coeur”).  In re Paramount Gold and Silver Corp. Stockholders Litigation, Consol. C.A. No. 10499-CB (Del. Ch. Apr. 13, 2017).  In doing so, the Court (i) rejected plaintiffs’ contention that certain consent rights in a royalty agreement entered into by the parties at the time of the merger agreement constituted an unreasonable deal protection device, and (ii) found that plaintiffs had failed to identify any material deficiencies in the company’s disclosures in advance of a shareholder vote on the merger.  Chancellor Bouchard, therefore, 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 [m]erger was approved by a fully informed and uncoerced vote of a majority of Paramount’s disinterested stockholders.”

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  • Delaware Chancery Court Declines To Dismiss Fiduciary Duty Claims In Shareholder-Approved Merger, Finding That Shareholders Alleged Sufficient Facts To Negate Application Of Corwin
     
    04/11/2017

    On March 31, 2017, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery declined to dismiss a shareholder claim for breach of fiduciary duty against the board of directors (the “Board”) of Saba Software, Inc. (“Saba”) in connection with Saba’s shareholder-approved all-cash merger with affiliates of private equity group Vector Capital Management, L.P. (“Vector”).  In re Saba Software, Inc. Stockholder Litigation, C.A. No. 10697-VCS (Del. Ch. Mar. 31, 2017).  The Court held that plaintiff’s allegations, if taken as true, “allow a reasonable inference that the stockholder vote approving the transaction was neither fully informed nor uncoerced.”   Therefore, notwithstanding the stockholder approval, the Court declined to apply the business judgment rule (as would ordinarily apply under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015)) and declined to dismiss the claims against the Board.  The Court did dismiss the aiding and abetting claims against Vector, finding that plaintiffs failed to allege that Vector knowingly participated in the Board’s alleged breach.

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  • Delaware Chancery Court Dismisses Suit Challenging Board Compensation Awards Under A Stockholder-Approved Compensation Plan
     
    04/11/2017

    On April 5, 2017, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery granted defendants’ motion to dismiss a stockholder derivative suit against the directors of Investors Bancorp, Inc., which had asserted a claim for breach of fiduciary duty in connection with the directors’ decision to grant themselves restricted stock and stock options under an equity compensation plan previously approved by a stockholder vote.  In re Investors Bancorp, Inc. Stockholder Litigation, C.A. No. 12327-VCS (Del. Ch. Apr. 5, 2017).  Plaintiffs, Investors Bancorp stockholders, had challenged the awards as “grossly excessive compensation” and also alleged that stockholder approval of the equity compensation plan was ineffective because the plan did not contain “meaningful limits” and, in any event, the disclosures in connection with the vote were materially misleading.  But the Court found that the plan—even as alleged—did contain “director-specific limits” on equity compensation, the awards were within those limits, and the stockholder vote was fully informed.  Therefore, the Court held that the stockholder approval constituted “ratification of the awards,” rendering them subject to the “business judgment rule’s presumptive protection” and reviewable only as “waste,” which plaintiffs did not plead.

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  • Delaware Chancery Preliminarily Enjoins Merger-Related Stockholder Meeting Until Financial Advisor’s Fees For Merger-Related Financing Are Disclosed   
     
    03/28/2017

    On March 22, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery preliminarily enjoined a stockholder vote on the proposed acquisition by Consolidated Communications Holdings, Inc. (“Consolidated”) of FairPoint Communications, Inc. (“FairPoint”).  Vento v. Curry, C.A. No. 2017-0157-AGB (Del. Ch. Mar. 22, 2017).  Plaintiff, a Consolidated stockholder, alleged that the Consolidated board of directors breached their fiduciary duties by failing to adequately disclose the financial interests of Consolidated’s financial advisor in the transaction and sought to enjoin the vote pending distribution of corrected disclosures.  The Court agreed that the disclosure was inadequate and delayed the vote until five days after Consolidated disclosed the amount of the advisor’s fees.

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  • Vermont District Court Dismisses Shareholder Lawsuit Asserting Section 14 Claims Premised On Forward-Looking Projections 
     
    02/28/2017

    On February 16, 2017, Judge Geoffrey W. Crawford of the United States District Court for the District of Vermont dismissed a putative shareholder class action against Keurig Green Mountain, Inc. (“Keurig”), Keurig’s former CEO and directors and corporate investors that acquired Keurig, alleging that the proxy disseminated to Keurig shareholders in connection with the buyout was materially false and misleading in violation of Sections 14(a) and 20(a) of the Securities Exchange Act.  Montanio v. Keurig Green Mountain, Inc., Case No. 5:16-cv-19.  The Court concluded that plaintiff’s primary allegation—that the board knowingly relied on depressed projections from management to justify accepting a low-value offer—failed to state a claim because plaintiff could not plead that the projections were objectively false.

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    CATEGORY: Disclosures
  • Delaware Supreme Court Affirms Holding That Business Judgment Rule Applies When Informed Majority Of Stockholders Tenders Shares In A Two-Step Merger
     
    02/14/2017

    On February 9, 2017, the Supreme Court of the State of Delaware affirmed the dismissal of a breach of fiduciary duty action brought by former shareholders of Volcano Corporation in connection with the acquisition of Volcano in a two-step all-cash tender offer and merger pursuant to Delaware General Corporation Law Section 251(h).  In re Volcano Corp. Stockholder Litig., C.A. No. 10485-VCM (Del. Feb. 9, 2017).  Without further elaboration, the Court’s brief order provides:  “it appears to the Court that the judgment of the Court of Chancery should be affirmed for the reasons stated in its decision.”  Id. at *1 (citing In re Volcano Corp. Stockholder Litig., 143 A.3d 727 (Del. Ch. 2016)).  As discussed in our post regarding that decision, the Chancery Court had held that because a fully informed, uncoerced majority of stockholders had tendered their shares during the first step of the two-step merger, the business judgment rule irrebuttably applied to the board’s decision to approve the merger.

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  •  New York Appellate Division Refines The Colt Standard For Nonmonetary Settlements Of Merger-Related Class Action Suits 
     
    02/14/2017

    On February 2, 2017, in Gordon v. Verizon Communications, Inc., No. 653084/13 (N.Y. App. Div. Feb. 2, 2017) (“Gordon”), the New York Supreme Court, Appellate Division, First Department reversed the decision of the trial court and approved a proposed nonmonetary settlement of a putative shareholders’ class action challenging the acquisition by Verizon Communications, Inc. (“Verizon”) of the 45% interest in Verizon Wireless held by subsidiaries of Vodafone Group PLC.  In doing so, the Appellate Division added to the five-factor Colt standard of review—and focused on—two additional factors for the evaluation of proposed nonmonetary class action settlements:  “whether the proposed settlement is in the best interests of the putative settlement class as a whole, and whether the settlement is in the best interest of the corporation.”  Id. at *21; see also In re Colt Indus. S’holder Litig., 155 A.D.2d 154 (N.Y. App. Div. 1990), aff’d as modified sub nom. Colt Indus. S’holder Litig. v. Colt Indus. Inc., 77 N.Y.2d 185 (1991).

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  • Delaware Chancery Dismisses Quasi-Appraisal Claim Challenging Short-Form Merger
     
    01/09/2017

    On January 4, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Court of Chancery of the State of Delaware dismissed a putative class action complaint against United Capital Corporation (“United Capital”), its board of directors, and A.F. Petrocelli, who is board chairman and CEO, and the owner of 94% of United Capital’s stock, in connection with a short-form merger through which Petrocelli acquired all outstanding stock of the company.  In re United Capital Corp., Stockholders Lit., C.A. No. 11619-VCMR (Del. Ch. Jan. 4, 2017).  Plaintiffs sought a quasi-appraisal remedy for allegedly inadequate disclosures in the notice of merger.  The court found the disclosures provided sufficient material information to the minority shareholders to enable them to determine whether to pursue an appraisal and dismissed the claims.  

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  • Southern District Of Texas Dismisses Securities Claims For Purported Proxy Misstatements And Omissions Because Other Disclosures Contained In The Proxy And Prior SEC Filings Rendered At-Issue Information Immaterial
     
    10/31/2016

    On October 21, 2016, Judge Sim Lake of the United States District Court for the Southern District of Texas dismissed with prejudice a putative securities class action against Eagle Rock Energy Partners, L.P. (“Eagle Rock”), Vanguard Natural Resources LLC (“Vanguard”), their affiliates and their directors.  Braun v. Eagle Rock Energy Partners, L.P., 4:15-cv-01470 (S.D. Tex., Oct. 21, 2016).  Plaintiffs, a purported class of Eagle Rock unitholders, asserted that the joint proxy filed in connection with Vanguard’s $474 million acquisition of Eagle Rock did not adequately warn about a potential debt covenant breach by Vanguard and was therefore false or misleading.  The Court found that the disclosures in the proxy, taken together with Vanguard’s other public filings, rendered the alleged misstatements and omissions immaterial.

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    CATEGORY: Disclosures
  • Delaware Chancery Dismisses Cash-Out Merger Challenge, Holding That Informed Stockholder Vote Triggered Business Judgment Review Notwithstanding “Disquieting” Allegations
     
    10/17/2016

    On October 12, 2016, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery dismissed a putative shareholder class action alleging fiduciary breaches by the board of directors of OM Group, Inc. (“OM”) arising from OM’s cash-out merger with Apollo Global Management, LLC (“Apollo”).  In re OM Group, Inc. S’holders Litig., Consol. C.A. No. 11216-VCS (Del. Ch. Oct. 12, 2016).  The conduct of directors in cash-out mergers is typically subject to enhanced scrutiny under Revlon.  Because OM’s shareholders had voted overwhelmingly to approve the merger in an uncoerced vote that the Court found to be fully informed, the Court found the board’s conduct was protected by the “irrebutable business judgment rule” under Corwin v. KKR Fin. Holdings, LLC, 125 A.3d 304 (Del. 2015), and dismissed the case.  The Court reached this conclusion despite allegations of an egregiously flawed sales process that the Court described as “disquieting.”

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  • Delaware Chancery Court Dismisses Post-Closing Merger Challenge Alleging Inadequate Disclosures Of Projections And Financial Advisor Fees
     
    10/03/2016

    On September 28, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed a shareholder challenge to the acquisition of Millennial Media, Inc. (“Millennial”) by AOL Inc. (“AOL”).  Nguyen v. Barrett, C.A. No. 11511-VCG (Del. Ch. Sept. 28, 2016). Plaintiff had sought post-closing damages for the Millennial board’s alleged failure to disclose (1) certain unlevered free cash flows and (2) details of compensation for Millennial’s financial advisor.  The Court rejected both claims.    
        
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  • Central District of California Denies Motion to Set Aside Judgment, Suggesting that Forum-Shopping May Have Motivated Litigants’ Conduct
     
    08/29/2016

    On August 17, 2016, Judge George H. King of the United States District Court for the Central District of California denied a joint motion to vacate the court’s prior dismissal of a shareholder derivative action so that the court could approve a proposed settlement.  In re CytRx Corp. S’holder Deriv. Litig., 14-6414-GHK-PJW, Dkt. 109 (C.D. Cal. Aug. 17, 2016).  Judge King found no grounds for vacatur and openly questioned whether forum-shopping—specifically, an attempt to avoid the Delaware Court of Chancery’s scrutiny of a proposed settlement—motivated the parties’ attempt to revive the California action.  This ruling highlights the impact of the Chancery Court’s increasing disfavor towards disclosure-only settlements of shareholder actions, and the alertness of other forums to litigants’ efforts to “avoid the glare of the Delaware Chancery Court’s spotlight.” 

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  • Delaware Court Of Chancery Slashes Attorneys’ Fee Request In Mootness Dismissal Context Despite Applying More Lenient Standard Based On Shareholder Benefit 

    08/15/2016

    On August 4, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery awarded counsel to shareholders of an acquired company $50,000 in attorneys’ fees—less than 20 percent of their requested fee award—in a mootness proceeding.  In re Xoom Corp. Stockholder Litig., C.A. No. 11263-VCG (consol.) (Del. Ch. Ct. Aug. 4, 2016).  The Xoom decision signals that despite the Court’s previously expressed openness to awarding attorneys’ fees to plaintiffs’ counsel for securing supplemental disclosures in the mootness context, see In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884, 898-99 (Del. Ch. 2016), that it will still heavily scrutinize the “get” part of the equation—i.e., the benefit of the additional disclosures to shareholders—even when there is no “give” (i.e., a broad class-wide release of claims) against which to weigh it.

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  • Delaware Court Of Chancery Holds That Business Judgment Rule Applies When Informed Majority Of Stockholders Tenders Shares In A Two-Step Merger
     
    07/11/2016

    On June 30, 2016, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed a breach of fiduciary duty action brought by former shareholders of Volcano Corporation against the company’s board of directors and financial advisor. In re Volcano Corp. Stockholder Litig., No. CV 10485-VCMR, 2016 WL 3583704 (Del. Ch. June 30, 2016). The Court held that because a fully informed majority of stockholders had tendered their shares during the first step of a two-step merger, the business judgment rule applied to the board’s decision to approve the merger. 

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