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On June 30, 2021, the Delaware Court of Chancery largely denied defendant directors’ motion to dismiss derivative claims for breaches of fiduciary duty arising from a controlling stockholder transaction. Vice Chancellor Fioravanti’s decision in Berteau v. Glazek rejected defendants’ “novel” argument that the “MFW doctrine,” set forth in Kahn v. M & F Worldwide Corp., could mandate application of the business judgment rule absent a majority-of-the-minority vote, and thus also serves as a reminder of the contours of the MFW doctrine.

Corporate Control; MFW

“How to Be ESG” — A Registered Fund Board’s Guide to ESG Compliance

Jul 09 2021

Enhanced Scrutiny Contributors

How can directors of mutual funds and exchange-traded funds (ETFs) that focus on environmental, social, and governance (ESG) investing prepare for the increased regulatory scrutiny by the U.S. Securities and Exchange Commission (SEC)? The SEC, which is primarily concerned with “greenwashing,” the practice of conveying a false image to investors that a product is ESG-friendly, is focused on registered funds’ disclosures, controls, and policies and procedures.

ESG

When Even “Entirely Fair” Is Not Enough

Jul 08 2021

Robert Garsson, Charlotte K. Newell and Andrew W. Stern

The Delaware Supreme Court recently reversed Chancellor Kathaleen S. McCormick’s post-trial decision upholding a disputed stock sale after concluding that the sale satisfied the entire fairness standard of review. Although the Court affirmed the trial court’s entire fairness finding — Delaware’s most rigorous standard of review under which a defendant must establish that a transaction was the product of both fair dealing and fair price — it nevertheless reversed because the Court of Chancery concluded that entire fairness was the “end of the road” for judicial review and declined to consider the board’s motivations for the transaction. Invoking the principle expressed in the seminal Delaware opinion in Schnell v. Chris-Craft that “inequitable action does not become permissible merely because it is legally possible,” the Supreme Court remanded the case for further consideration of the motivation for and purpose of the subject stock sale.

Blasius; Corporate Control; Director Independence and Conflicts

Sidley Perspectives on M&A and Corporate Governance

Jul 07 2021

Enhanced Scrutiny Contributors

Sidley is pleased to share the June 2021 issue of Sidley Perspectives on M&A and Corporate Governance, a quarterly newsletter designed to keep you current on what we consider to be the most important legal developments involving M&A and corporate governance matters.

Corwin; COVID-19; ESG; M&A; Sidley Perspectives

Sometimes the Best Defense Is Just … a Defense

Jun 29 2021

Deborah Sands and Alex J. Kaplan

On June 16, 2021, the Delaware Court of Chancery denied the plaintiffs’ motion for partial judgment on the pleadings regarding portions of their declaratory judgment claim filed in Dr. Thomas Markusic, Dr. Maxym Polyakov, et al. v. Michael Blum, Patrick Joseph King, et al. Plaintiffs filed the declaratory judgment action in an attempt to preempt their adversary’s potential claims, and Chancellor McCormick’s rejection of the requested declaratory relief offers a key lesson for litigants contemplating a similar preemptive action.

Aiding and Abetting; Best Practices

The Court of Chancery Breaks New Ground in Allowing “Reverse” Veil Piercing

Jun 22 2021

Vincent J. Margiotta and Jon Muenz

In a matter of first impression, Vice Chancellor Joseph R. Slights III recently concluded in Manichaean Capital, LLC v. Exela Technologies, Inc. that Delaware law permits a claim for “reverse” veil-piercing — that is, going after the assets of a subsidiary as opposed to a parent corporation. The decision provides a limited yet potentially powerful tool for those seeking to enforce judgments in the context of complex corporate structures, particularly where a corporate family has taken steps to limit assets flowing through the subsidiary that is liable. It also provides occasion to remind business entities of the attendant risks of failing to respect corporate separateness and form.

Best Practices; Post-Closing Disputes; Veil Piercing/Corporate Separateness

Alarm.Com and the Open Questions Regarding Trade Secret Claims Related To Usurpation of Corporate Opportunities

Jun 14 2021

Robert Velevis and Lora Chowdhury

This is Part 2 in a 2-part series discussing developments around contractual waivers of the corporate opportunity doctrine in the private equity realm.

In Part 1, we discussed a recent Texas Court of Appeals case which held that members of a Delaware LLC can contract around (i.e., waive) the general principle protecting against usurpation of corporate opportunities. See Patterson v. Five Point Midstream Funds I and II, L.P., Case No. 01-19-00-643-CV (Tex. App. Dec. 8, 2020). We discussed that the Patterson decision followed a trend in Delaware that permits parties to contract around the traditional rules prohibiting usurpation of corporate opportunities. See Alarm.com Holdings, Inc. v. ABS Capital Partners Inc., No. CV 2017-0583-JTL, 2018 WL 3006118 (Del. Ch. June 15, 2018), aff’d, 204 A.3d 113 (Del. 2019). In December 2019, the Delaware Supreme Court in Alarm.com, affirmed a decision penned by Vice Chancellor Laster out of the Court of Chancery dismissing a claim under the Delaware Uniform Trade Secret Act (DUTSA).

In this Part 2, we will take a deeper dive into Alarm.com, the open questions it left, and potential new developments to keep an eye out for concerning waiver of usurpation of corporate opportunities in the private equity realm. This decision — and the open questions that have not yet been addressed by subsequent cases — is of particular importance to private equity owners that hold investment in companies governed by Delaware law.

Corporate Opportunity; Private Equity

Chancery Denies Corwin Cleansing In Light of Process Concerns

Jun 10 2021

Matthew J. Dolan

Last month Vice Chancellor Zurn issued a significant, 200+ page decision on a motion to dismiss filed by defendants in the ongoing Pattern Energy transaction litigation, captioned In re Pattern Energy Group Inc. Stockholders Litigation, C.A. No. 2020-0357-MTZ. As we previously reported, class actions had been filed in Chancery Court and Delaware Federal District Court following the $6.1 billion going-private sale of Pattern Energy Group, Inc. to Canada Pension Plan Investment Board (“Canada Pension”). Both cases present overlapping breach of fiduciary duty claims. The Chancery Court case has moved forward faster, with that Court now issuing a decision denying defendants’ motion to dismiss. The decision is a reminder to directors and their advisers that without careful adherence to an independent sales process and transaction structure, directors risk losing the liability protections that Delaware law otherwise provides.

Corwin; Director Independence and Conflicts; M&A; Revlon; Special Committee

Shareholder Activism and ESG: What Comes Next, and How to Prepare

Jun 02 2021

Enhanced Scrutiny Contributors

The recent successes of shareholder activists against Big Oil are one of many signs of mounting and effective pressure from investors on public companies to enhance their performance and disclosures on environmental, social, and governance (ESG) criteria. This article provides background on the potential for increased integration of ESG in shareholder activism campaigns and offers practical guidance for companies to preempt ESG-themed shareholder activism.

Please click here to read the full posting.

ESG; Shareholder Activism

No Shortcuts Allowed: Court of Chancery Rejects Attempt To Circumvent MFW’s Two-Step Mandate

“How to Be ESG” — A Registered Fund Board’s Guide to ESG Compliance

When Even “Entirely Fair” Is Not Enough

Sidley Perspectives on M&A and Corporate Governance

Sometimes the Best Defense Is Just … a Defense

The Court of Chancery Breaks New Ground in Allowing “Reverse” Veil Piercing

Alarm.Com and the Open Questions Regarding Trade Secret Claims Related To Usurpation of Corporate Opportunities

Chancery Denies Corwin Cleansing In Light of Process Concerns

Shareholder Activism and ESG: What Comes Next, and How to Prepare

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