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Seventh Circuit Says Delaware Companies May Not Bar The Door To Federal Court For Federal Proxy Fraud Derivative Claims

Jan 20 2022

I. Introduction

The Seventh Circuit recently issued an important decision holding that an exclusive forum provision in a company’s bylaws requiring that all derivative actions be brought in Delaware Chancery Court is unenforceable as applied to derivative cases brought under the federal proxy laws. On its face, Seafarers Pension Plan v. Bradway seems to foreclose the use of exclusive forum provisions for claims for which there is exclusive federal jurisdiction. As the Seventh Circuit notes, that would seem to be consistent with both federal proxy fraud law, which forbids contractual waivers of compliance with the law, as well as Delaware state law. But as discussed below, there is reason to believe that the decision may not be the last word on the topic, and, indeed, that it could end up before the U.S. Supreme Court.

Best Practices; Charter/Bylaw Provisions and Amendments; Derivative Litigation; Forum/Jurisdiction Issues

Extraordinary Times May Still Call for Ordinary Measures: Delaware Supreme Court Affirms Buyer’s Termination of $5.8 Billion Transaction

Jan 12 2022

Charlotte K. Newell and Andrew W. Stern

The Delaware Supreme Court recently affirmed Vice Chancellor Laster’s much talked of AB Stable post-trial decision, holding that the buyer of a $5.8 billion hotel portfolio could terminate the transaction due to, among other things, the seller’s breach of an ordinary course covenant by making operational changes in response to the COVID-19 pandemic. The Supreme Court’s affirmance provides critical guidance for the interpretation and navigation of such provisions, particularly in extraordinary times.

M&A; MAE; Ordinary Course

New School SPAC Subject to Old School Rules: Court of Chancery Rejects SPAC Sponsor’s Motion to Dismiss

Jan 06 2022

James Heyworth, Charlotte K. Newell and Julia L. Bensur

We previously wrote about the MultiPlan Corp. SPAC litigation relating to the de-SPAC merger of Churchill Capital Corp. III (“Churchill”) and its target, MultiPlan Corp. On January 3, the Delaware Court of Chancery issued its long-anticipated decision on the defendants’ motion to dismiss—the first dispositive motion to be briefed and decided in the Delaware courts in the wave of recent SPAC litigation. Below we highlight some key takeaways.

Misrepresentations and Omissions; SPACs

Board Oversight: Key Focus Areas for 2022

Jan 04 2022

Holly J. Gregory

In her regular column on corporate governance issues, Holly Gregory explores issues that are likely to require board attention in 2022 in an environment of heightened scrutiny of the board’s oversight role.

Best Practices; ESG; Shareholder Activism

Sidley Perspectives on M&A and Corporate Governance

Dec 28 2021

Enhanced Scrutiny Contributors

Sidley is pleased to share the December 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.

Best Practices; M&A; Shareholder Activism; Sidley Perspectives

Periodic Reminder: Former Stockholders Have No Standing to Pursue Section 220 Demands

Dec 21 2021

Alex J. Kaplan and Victor Flores

On December 3, 2021, the Delaware Court of Chancery dismissed an action for books and records under Delaware General Corporation Law Section 220, reiterating that when a plaintiff files such an action, they must currently be a stockholder of the company against whom the Section 220 action is filed.

Specifically, a plaintiff must file a books and records action before a merger agreement becomes effective under its own terms; after the merger becomes effective, a plaintiff typically ceases to be a stockholder in the target company, which also precludes their ability to pursue books and records of that company. Companies facing Section 220 demands in the face of a merger agreement should scrutinize the demanding party’s standing to pursue such records.

M&A; Section 220/Inspection Rights

The Refined Demand Futility Standard Takes Shape

Dec 16 2021

Heather Benzmiller Sultanian

Over the past several months, a number of decisions released by the Delaware courts have begun to grapple with the new Zuckerberg three-part demand futility standard announced by the Delaware Supreme Court in September. Many cases spotlight the need to assess demand futility on a director-by-director basis. But at least one recent decision has highlighted another aspect of the test, and instead turns on the need to assess demand futility on a transaction-by-transaction basis. In In re Vaxart, Inc. Stockholder Litigation, Vice Chancellor Fioravanti dismissed several claims from a shareholder derivative suit purportedly filed on behalf of Vaxart, Inc. because the plaintiffs failed to allege that a majority of the directors received a material personal benefit or faced a substantial likelihood of liability from the specific transaction that would have been the subject of the pre-suit demand.

COVID-19; Demand Futility; Derivative Litigation

Court of Chancery Awards $700M In Opinion Highlighting Opinion Of Counsel Risks And Power Of Contra Proferentem Doctrine

Dec 13 2021

Andrew W. Stern and Julia L. Bensur

Once in a while, a court decision provides not just guidance for participants in corporate transactions but also can serve as a wakeup call for the players’ legal advisors. Such is the case with the post-trial decision in Bandera Master Fund LP et al v. Boardwalk Pipeline Partners LP, in which Vice Chancellor Laster resolved various disputes regarding a transaction through which Boardwalk Pipeline Partners, LP (“Boardwalk”) was taken private by its controller, Loews Corporation (“Loews”). The resulting $700 million damages award, and sharp criticism of the legal opinions provided in support of the transaction, has garnered headlines, but the decision is also notable for its review of several long-standing principles of Delaware law that provide guidance for contract negotiations and litigation alike.

Best Practices; Corporate Control; MAE; Partnerships

Still in the Crosshairs: Plaintiffs Continue to Take Aim at Post-Merger SPACs

Dec 06 2021

James Heyworth and Julia L. Bensur

We previously wrote about the trend of SPAC (special purpose acquisition company) lawsuits filed in the Delaware Court of Chancery, with some combination of the post-merger entity, its board of directors, or the SPAC sponsor named as defendants. Over the course of this year, we have seen this trend continue, with a number of new SPAC lawsuits filed in the Court of Chancery since we last wrote on this topic. Several recent complaints filed in the Court of Chancery exemplify that the same recurring issues discussed in this space previously (e.g., alleged sponsor conflicts of interest, a hasty process to speedily complete a de-SPAC deal, lack of pre-merger diligence) likely will continue to feature prominently in SPAC litigations.

Misrepresentations and Omissions; SPACs

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