Applying Entire Fairness, Delaware Court of Chancery Sustains Class Action Claims for Breaches of Fiduciary Duties Arising from Alleged Omissions in SPAC Merger Proxy
On March 1, 2023, Vice Chancellor Lori Will of the Delaware Court of Chancery declined to dismiss a putative class action brought by stockholders of special purpose acquisition company (or “SPAC”) GigCapital2, Inc. (“Gig2”) against Gig2’s controlling stockholder and directors, asserting that they breached their fiduciary duties in connection with Gig2’s acquisition of UpHealth Holdings, Inc. and Cloudbreak Health, LLC in a so-called “de-SPAC” merger. Laidlaw v. Gigacquisitions2, LLC, et. al., C.A. No. 2021-0821-LWW (Del. Ct. Ch. Mar. 1, 2023) (“Gigacquisitions2”). Plaintiffs alleged that defendants issued a false and misleading merger proxy to obtain approval of a value-destructive de-SPAC transaction and thereby enrich themselves through their unique ownership interests. Defendants moved to dismiss, arguing that (i) plaintiffs’ claims were derivative (alleging harm to the company rather to individual stockholders) but plaintiffs failed to make a demand or plead demand futility, and (ii) the business judgment rule applied. The Court held that plaintiffs’ claims were direct, not derivative, and that entire fairness—Delaware law’s most stringent standard of review—applied because inherent conflicts of interest existed between defendants and Gig2’s public stockholders.CATEGORIES : Deal Disputes, Disclosures, Fiduciary Duties, SPACs, Standard of Review
Delaware Supreme Court Reverses Dismissal Of A Post-Merger Suit For Alleged Breach Of Fiduciary Duty Related To Disclosures On Appraisal Rights
On July 19, 2022, in an opinion authored by Justice Gary F. Traynor, a majority of the Supreme Court of Delaware sitting en banc affirmed in part and reversed in part the dismissal of breach of fiduciary duty claims against the directors of a real estate investment trust (the “Company”) brought by former stockholders of the Company after its acquisition. In re GGP, Inc. Stockholder Litigation, No. 202, 2021 (Del. July 19, 2022). Plaintiffs alleged that the merger was structured to eliminate the statutory appraisal rights of the Company’s stockholders and that the proxy disclosures regarding appraisal rights were misleading. The Delaware Court of Chancery had dismissed the claims. On appeal, the Delaware Supreme Court affirmed the dismissal of the claim alleging an improper merger structure because “defendants did not, by paying a large portion of the merger consideration by way of a pre-closing dividend, structure the merger in a manner that effectively and unlawfully eliminated appraisal rights.” However, the Court reversed the dismissal of the disclosure claim because it found the complaint adequately alleged that defendants “consciously crafted the transaction and the related disclosures in such a way as to deter [the Company’s] stockholders from exercising their appraisal rights.”CATEGORIES : Appraisals, Disclosures, Fiduciary Duties
Southern District Of New York Denies Application For Mootness Fee In Connection With Merger-Disclosure Litigation
On February 7, 2022, Judge J. Paul Oetken of the United States District Court for the Southern District of New York denied an application by plaintiff’s counsel for attorneys’ fees after plaintiff’s merger-related disclosure claims were “mooted” by defendant Nuance Communications Inc. (“Nuance”). Serion v. Nuance Communications, No. 21-CV-4701 (S.D.N.Y. Feb. 7, 2022). Although the Court found that the lawsuit prompted the company to issue supplemental disclosures, the Court held that the disclosure of this additional information did not confer a “substantial benefit” on shareholders.CATEGORIES : Attorneys’ Fees, Deal Disputes, Disclosures
Delaware Court Of Chancery Sustains Class Action Claims For Breaches Of Fiduciary Duties And Aiding And Abetting Arising From Alleged Omissions In SPAC Merger Proxy
On January 3, 2022, Vice Chancellor Lori W. Will of the Delaware Court of Chancery largely denied a motion to dismiss a putative class action brought by the stockholders of Churchill Capital Corp. III, a special purpose acquisition company or “SPAC” (“Churchill”) alleging that the company’s controlling stockholder, officers, and directors (“the Company Defendants”) breached their fiduciary duties and the company’s financial advisor aided and abetted that breach in connection with the SPAC’s acquisition of MultiPlan, Inc. (“MultiPlan”). In re MultiPlan Corp. Stockholders Litig., C.A. No. 2021-0300-LWW (Del. Ch. Jan. 3, 2022). Plaintiffs alleged that defendants omitted to disclose that a large customer of MultiPlan would soon stop using MultiPlan’s services, allegedly causing stockholders to approve the merger based on faulty information. Defendants argued that the claim was derivative in nature, rather than one that could be asserted directly, and moved to dismiss for failure to plead demand futility and on the grounds that the business judgment rule applied. The Court held that plaintiffs’ claims were direct, rather than derivative, and that entire fairness applied because of what it found to be inherent conflicts of interest between defendants and the company’s public stockholders.CATEGORIES : Deal Disputes, Demands on Boards, Disclosures, Fiduciary Duties, Outside Advisors, Standard of Review
Delaware Court Of Chancery Dismisses Breach Of Fiduciary Duty Claims Against Certain Officer-Directors Of Acquirer But Upholds A Claim Against A Special Committee Member
On June 21, 2021, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed breach of fiduciary duty claims brought by stockholders of Oracle Corporation (the “Company”) against two of its officer-directors in connection with its acquisition of NetSuite, Inc., but upheld a claim against the chairperson of the special committee that had been established to evaluate the transaction. In Re Oracle Corp. Deriv. Litig., C.A. No. 2017-0337-SG (Del. Ch. June 21, 2021). Plaintiffs alleged that the acquisition was a “controlled self-dealing transaction” in which the Company overpaid for the target to the benefit of the entities’ common founder, who allegedly controlled both. As discussed in a prior post, the Court previously dismissed claims for aiding and abetting breaches of fiduciary duty that had been asserted against the target’s CEO and Chairman. Finding that the complaint failed to plead facts demonstrating gross negligence or disloyalty, the Court dismissed fiduciary-duty breach claims against two officer-directors. The Court, however, found the complaint adequately alleged that it is “reasonably conceivable” that the director on the special committee was “not independent” of the founder and “actively participated in the formulation” of the transaction to advance the alleged controller’s interest.
Delaware Court Of Chancery Dismisses Caremark And Disclosure Claims Related To Alleged Consumer Protection Law Violations For Failure To Plead Demand Futility
On March 30, 2021, Chancellor Andre G. Bouchard dismissed a derivative suit brought by a stockholder of LendingClub Corporation (the “Company”) against certain of the Company’s current and former directors and officers for failure to plead demand futility. Fisher v. Sanborn, et al., No. 2019-0631-AGB (Del. Ch. March 30, 2020). Plaintiff asserted breach of fiduciary duty claims against defendants after the Federal Trade Commission (FTC) filed a complaint against the Company for allegedly violating certain consumer protection laws by engaging in deceptive and unfair practices in connection with its lending business. Specifically, plaintiff alleged that defendants (i) breached their oversight duties by failing to monitor and oversee the Company’s compliance with consumer protection laws, and (ii) misrepresented the subject of the FTC investigation. The Court, however, found the complaint did not adequately plead that defendants failed to implement a monitoring system relevant to consumer protection law compliance or consciously disregard indications of noncompliance, as required to be alleged under Caremark. The Court also found that the complaint did not adequately plead that defendants “deliberately lied to investors.” The Court therefore held that the complaint did not demonstrate that the directors faced a substantial likelihood of liability and thus pre-suit demand on the board was not excused.
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.
Delaware Court Of Chancery Declines To Dismiss Claims That Officers Tilted Take‑Private Sale Process To Favored Buyer
On October 2, 2020, Vice Chancellor Kathaleen S. McCormick of the Delaware Court of Chancery denied a motion to dismiss breach of fiduciary duty claims brought by stockholders of Mindbody, Inc. (the “Company”) against two of its officers in connection with the Company’s $1.9 billion sale to a private equity firm. In Re Mindbody, Inc., Stockholders Litigation, C.A. No. 2019-0442-KSJM (Del. Ch. Oct. 2, 2020). Plaintiffs asserted that the Company’s founder-CEO/Chairman tilted the sale process toward the favored buyer, motivated by a need for liquidity and the prospect of post-merger employment with the firm. In particular, plaintiffs alleged that the CEO orchestrated (i) the provision of reduced diligence information in a less timely fashion to other potential bidders, and (ii) the lowering of earnings guidance to depress the stock price and make the Company a more attractive target to the favored firm while enhancing the premium apparent to stockholders. The Court found the allegations sufficient to support a “paradigmatic Revlon claim” and the determination at the pleading stage that the proxy was materially misleading such that the alleged breach was not cleansed under Corwin.
Delaware Court Of Chancery Dismisses Derivative Suit For Failure To Plead Sufficient Facts Showing Demand Futility
On September 30, 2020, Chancellor Andre G. Bouchard dismissed a derivative suit brought by stockholders of TrueCar, Inc. (the “Company”) against certain of its officers and directors (along with allegedly related entities) asserting breaches of fiduciary duty, insider trading, unjust enrichment, contribution and indemnification, as well as aiding and abetting. In Re TrueCar, Inc. Stockholder Derivative Litigation, C.A. No. 2019-0672-AGB (Del. Ch. Sept. 30, 2020). According to the complaint, the Company operated an internet platform designed to facilitate purchases of cars that allegedly depended on consumer traffic directed to TrueCar by its “affinity partners.” The gravamen of the claims was that defendants did not disclose in the Company’s SEC filings that an impending redesign of the website of its most significant affinity partner would negatively impact the Company’s business and that certain defendants and their alleged affiliates engaged in stock sales before the public disclosure of this allegedly adverse development. Dismissing the suit in its entirety, the Court found that plaintiffs failed to plead “particularized facts sufficient to impugn the ability” of any of the directors to consider a pre-suit demand because the allegations did not demonstrate that the directors learned of the development or ignored any red flags before the challenged disclosures and stock sales.
Even After Finding Corwin Inapplicable Because Of Alleged Misstatements, Delaware Court Of Chancery Dismisses Post-Merger Damages Claims For Failure To Plead Bad Faith
On August 31, 2020, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed breach of fiduciary duty claims asserted against the directors of USG Corporation by former stockholders following its acquisition by a privately held German manufacturer of building materials. In re USG Stockholder Litigation, C.A. No. 2018-0602-SG (Del. Ch. Aug. 31, 2020). Plaintiffs alleged that defendants failed to secure maximum value for their shares in connection with the merger and sought damages, including by way of quasi-appraisal. Even though an overwhelming majority of the disinterested stockholders approved the sale, the Court declined to dismiss the claims based on Corwin cleansing because plaintiffs had adequately pleaded that the proxy was materially misleading. Nevertheless, the Court granted the motion to dismiss because USG’s corporate charter exculpated the directors, and plaintiffs failed to adequately allege bad faith or disloyalty as required to plead a non-exculpated claim.
CATEGORIES : Charters & Bylaws, Disclosures, Fiduciary Duties
Shareholder Derivative Complaints Allege Lack Of Board And Senior Executive Diversity
In July 2020, shareholders filed three separate but substantially similar derivative suits in U.S. district courts in California against certain directors and officers of three major technology companies, asserting claims related to alleged failures to uphold commitments to diversity.Specifically, plaintiffs allege that defendants breached their fiduciary duties by failing to ensure diversity in particular at the board and executive levels, as well as violations of Section 14(a) of the Securities Exchange Act of 1934 for alleged misrepresentations about the companies’ commitments to diversity.In addition to monetary damages, the complaints seek to compel the companies to advance several wide-ranging proposals regarding diversity initiatives for shareholder votes.
CATEGORIES : Disclosures, Fiduciary Duties, Injunctions
Delaware Supreme Court Reverses Dismissal Of Merger-Related Breach Of Fiduciary Duty Claims Regarding Allegedly Undisclosed Conflict Of Interest
On June 30, 2020, in an en banc opinion authored by Justice Karen L. Valihura, the Supreme Court of Delaware reversed the Delaware Court of Chancery’s dismissal of a stockholder lawsuit arising out of the merger between Towers Watson & Co. (“Towers”) and Willis Group Holdings Public Limited Company (“Willis”). City of Fort Myers Gen. Emps.’ Pension Fund v. Haley, C.A. 2018-0132-KSJM (Del. June 30, 2020). As we discussed in our prior post, plaintiffs, who had been stockholders of Towers, alleged that the CEO of Towers breached his fiduciary duty of loyalty by negotiating the merger without adequately disclosing to the rest of the Towers board a compensation proposal he had received from Willis’s second-largest stockholder, whose co-founder and Chief Investment Officer served on the Willis board. Reversing, the Delaware Supreme Court found that plaintiffs adequately pleaded facts sufficient to rebut the business judgment rule.
Delaware Court Of Chancery Grants Motion To Dismiss Holding That Fiduciaries Of Acquired Entity Did Not Aid And Abet Alleged Fiduciary Breaches By Acquirer
On June 22, 2020, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery granted a motion to dismiss a derivative claim for aiding and abetting breaches of fiduciary duty brought by stockholders of Oracle Corporation against the CEO and Chairman of NetSuite, Inc., in connection with alleged breaches of fiduciary duty by Oracle’s directors arising from its acquisition of NetSuite. In Re Oracle Corp. Deriv. Litig., C.A. No. 2017-0337-SG (Del. Ch. June 22, 2020). Plaintiffs alleged that defendants had aided and abetted breaches by Oracle’s directors by failing to disclose in NetSuite’s public filings certain aspects of the negotiations that allegedly would have alerted Oracle’s special committee for the merger to the fact that Oracle was overpaying. The Court acknowledged the “incongruity” of plaintiffs’ theory that fiduciaries of a target whose obligation to their stockholders is to “maximize price” could be held liable for aiding and abetting the acquirer’s fiduciaries by not disclosing information that would have led the latter to “scuttle” a deal favoring the target. The Court suggested that there could be such a case—in the Court’s language, “in the infinite garden of theoretical inequity, such a flower may bloom”—but this is not it. Instead, the Court held that it was not reasonably conceivable that the difference between what was disclosed and what plaintiffs alleged should have been disclosed constituted “substantial assistance”—a necessary element for aiding and abetting—to the acquirer’s fiduciaries in their alleged breaches.
District Of Maryland Dismisses Post-Merger Securities Class Action, Finding Omission Of Public Information Relating To Financial Advisor’s Analysis Did Not Render Proxy Materially Misleading
On December 4, 2019, Judge Ellen L. Hollander of the United States District Court for the District of Maryland dismissed with prejudice a stockholder class action suit against Gramercy Property Trust (“Gramercy” or the “Company”), a real estate investment trust (“REIT”), and its financial advisor for failure to state a claim under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934. Hurtado v. Gramercy Property Trust, No. ELH-18-2711 (D. Md. Dec. 4, 2019). Following Gramercy’s August 2018 sale to an affiliate of the Blackstone Group L.P. (“Blackstone”), plaintiff filed suit against the financial advisor (which was represented by Shearman & Sterling), Gramercy, and certain of its officers and directors, alleging that defendants materially misled Gramercy’s stockholders by issuing a proxy statement that omitted information plaintiff claimed was relevant to Gramercy’s market value at the time of the merger.CATEGORIES : Deal Disputes, Disclosures, Outside Advisors
Delaware Court Of Chancery Finds Certain Safe Harbor Protections Inapplicable To Approval Of Merger With General Partner’s Affiliate
On October 29, 2019, Chancellor Andre G. Bouchard of the Delaware Court of Chancery granted partial summary judgment to a common unitholder of Regency Energy Partners LP (“Regency”) challenging a merger with an affiliate of Regency’s general partner. Dieckman v. Regency GP LP, C.A. No. 11130-CB (Del. Ch. Oct. 29, 2019). Plaintiff alleged that defendants (Regency’s general partner and its affiliates) breached the limited partnership agreement by approving the merger even though they “did not believe that the [m]erger was in the best interests of Regency.” Defendants argued that their approval was protected under three “safe harbors” in the agreement: (i) reasonable reliance upon the opinion of an investment banker; (ii) “special approval” by an independent conflicts committee; and (iii) a majority vote of the common unitholders unaffiliated with the general partner. Finding a genuine issue of fact as to whether the general partner’s board actually relied on the opinion of the investment banker, the Court denied defendants’ motion for summary judgment. The Court, however, determined plaintiff demonstrated that one of the members of the conflicts committee was not independent. Accordingly, the Court found the “special approval” safe harbor unavailable and granted partial summary judgment to plaintiff on that point. Because the proxy provided to common unitholders stated that the conflicts committee was independent, the Court found it misleading and granted partial summary judgment to plaintiff on the unavailability of the unitholder vote safe harbor.
CATEGORIES : Deal Disputes, Disclosures, Standard of Review
Delaware Court Of Chancery Dismisses Caremark Claims Against Directors After Company Publicly Disclosed Misconduct
On October 31, 2019, Vice Chancellor Kathaleen S. McCormick of the Delaware Court of Chancery dismissed a stockholder derivative suit against the directors of LendingClub Corporation for failure to plead demand futility. In re LendingClub Derivative Litigation, C.A. No. 12984-VCM (Del. Ch. Oct. 31, 2019). Plaintiffs asserted breach of fiduciary duty claims against the directors after the company disclosed that it had self-reported certain alleged misconduct by the CEO and others to the SEC, as well as the problems that prompted the company’s internal investigation, the results of that investigation, and the company’s remediation efforts. Plaintiffs alleged that the board did not adequately implement a system of controls or monitor company operations and “thus disabled itself from being informed of problems requiring its attention.” Determining that the complaint did not allege facts demonstrating bad faith—as is necessary to prevail on a Caremark claim for violation of oversight duties—and, therefore, that a majority of the directors did not face a substantial risk of liability, the Court concluded that pre-suit demand was not excused.
Delaware Court Of Chancery Again Dismisses Aiding And Abetting Claims For Pleading Deficiencies
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 claims—raising “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.”CATEGORIES : Appraisals, Deal Disputes, Disclosures, Fiduciary Duties
Delaware Court Of Chancery Applies Corwin To Dismiss Breach Of Fiduciary Duty Claims, Finding Allegations Of A Controlling Stockholder Conflict Inadequately Pleaded
04/09/2019On 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
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.CATEGORIES : Disclosures, Fiduciary Duties, Injunctions
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
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
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.CATEGORIES : Appraisals, Deal Disputes, Disclosures, Fiduciary Duties, Standing
Delaware Court Of Chancery Declines To Dismiss Fiduciary Duty Breach Claims In Connection With Take-Private Acquisition Of Recently Delisted Company
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
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
06/19/2018On 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.
Delaware Court Of Chancery Relies On Corwin To Dismiss Post-Closing Fiduciary Duty Claims After Finding Acquiror Was Not A Controlling Stockholder
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.
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
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.
New York Court Denies Approval Of Disclosure-Only Settlement, Finding Supplemental Disclosures “Useless”
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
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.
Read moreCATEGORIES : Charters & Bylaws, Deal Disputes, Disclosures, Fiduciary Duties, Standard of Review
Delaware Court Of Chancery Ruling Provides Guidance On Attorney-Client Privilege Protection For Draft Stockholder Communications
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.”
Delaware Court Of Chancery Dismisses Derivative Action, Finding Demand Unexcused Because Plaintiff Did Not Plead Non-Exculpated Claims Against A Majority Of Directors
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.
Read moreCATEGORIES : Demands on Boards, Disclosures, Fiduciary Duties, Standing
Delaware Chancery Court Dismisses Post-Closing Challenge To Two-Step Merger Under Corwin Finding Tendering Stockholders Were Fully Informed
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.”
Read moreCATEGORIES : Deal Disputes, Disclosures, Fiduciary Duties, Outside Advisors
Delaware Chancery Court Dismisses Breach Of Fiduciary Duty And Quasi-Appraisal Claims Under Corwin
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.
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
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.”
Delaware Chancery Court Declines To Dismiss Fiduciary Duty Claims In Shareholder-Approved Merger, Finding That Shareholders Alleged Sufficient Facts To Negate Application Of Corwin
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.
Delaware Chancery Court Dismisses Suit Challenging Board Compensation Awards Under A Stockholder-Approved Compensation Plan
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.
Delaware Chancery Preliminarily Enjoins Merger-Related Stockholder Meeting Until Financial Advisor’s Fees For Merger-Related Financing Are Disclosed
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.
Read moreCATEGORIES : Disclosures, Injunctions, Outside Advisors
Vermont District Court Dismisses Shareholder Lawsuit Asserting Section 14 Claims Premised On Forward-Looking Projections
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.
Read moreCATEGORY : Disclosures
Delaware Supreme Court Affirms Holding That Business Judgment Rule Applies When Informed Majority Of Stockholders Tenders Shares In A Two-Step Merger
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.
New York Appellate Division Refines The Colt Standard For Nonmonetary Settlements Of Merger-Related Class Action Suits
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).
Read moreCATEGORIES : Attorneys’ Fees, Disclosures
Delaware Chancery Dismisses Quasi-Appraisal Claim Challenging Short-Form Merger
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.
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
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.
Read moreCATEGORY : Disclosures
Delaware Chancery Dismisses Cash-Out Merger Challenge, Holding That Informed Stockholder Vote Triggered Business Judgment Review Notwithstanding “Disquieting” Allegations
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.”
Delaware Chancery Court Dismisses Post-Closing Merger Challenge Alleging Inadequate Disclosures Of Projections And Financial Advisor Fees
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.
Central District of California Denies Motion to Set Aside Judgment, Suggesting that Forum-Shopping May Have Motivated Litigants’ Conduct
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.”
Read moreCATEGORIES : Charters & Bylaws, Disclosures
Delaware Court Of Chancery Slashes Attorneys’ Fee Request In Mootness Dismissal Context Despite Applying More Lenient Standard Based On Shareholder Benefit
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.
Read moreCATEGORIES : Attorneys’ Fees, Disclosures
Delaware Court Of Chancery Holds That Business Judgment Rule Applies When Informed Majority Of Stockholders Tenders Shares In A Two-Step Merger
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.