Delaware Court of Chancery Finds No “Truth” to Minority Shareholder’s Allegations of a Lock-Up Conspiracy by Truth Social Operator, But Does Not Reach Presidential Immunity
In September, the Delaware Court of Chancery dismissed a lawsuit by minority shareholder United Atlantic Ventures, LLC (“UAV”) against Trump Media and Technology Group Corp. (“TMTG”), the operator of social media platform Truth Social, and several other individual Defendants, including President Donald Trump, Devin Nunes, Donald Trump Jr., and Kash Patel. In the 55-page opinion, Vice Chancellor Will found that the Court of Chancery need not decide whether the case should be stayed based on presidential immunity, because all of the claims were incompatible with Delaware law, insufficiently pled “conspiracy theories,” or better suited for Florida state court.
The lawsuit, and the disputes that precipitated it, have a somewhat complicated history. (The likes of which have never been seen, many people are saying.) According to the operative complaint, in 2021, UAV entered into a consulting agreement with then-former President Trump and Trump Media LLC, whereby UAV received an 8.6% ownership interest in the soon-to-be-formed TMTG in exchange for consulting services, aimed primarily at taking TMTG public. To accomplish this goal, UAV identified a special purpose acquisition company, Digital World Acquisition Corp. (DWAC), as a merger partner for TMTG. But the merger was delayed until 2023 and, in the meantime, Trump and UAV allegedly had a falling out, leaving UAV uninvolved with the business, but retaining its ownership stake.
Litigation followed, by UAV in the Delaware Court of Chancery, and by TMTG in Florida state court. In February 2024, while that litigation was ongoing, DWAC announced plans to impose a 180-day lock-up on all legacy TMTG shareholders after the merger. UAV and another minority shareholder, Bradford Cohen, who had just served a books and records request on TMTG, were the only shareholders affected by this change, as the other shareholders were already subject to a lock-up provision. In response, UAV amended its complaint to focus on the new lock-up provision and Defendants moved to dismiss. While the motion was pending, Donald Trump was reelected as president, and Defendants moved for a stay on the basis of temporary presidential immunity. Once that issue was fully briefed, the Court of Chancery issued its opinion, dismissing the complaint in its entirety. (A total disaster for the plaintiff — sad!)
The Court of Chancery first dismissed with prejudice the five counts challenging the lock-up. VC Will rejected Plaintiff’s argument that DWAC’s Second Amended Charter, which imposed the lock-up, was an improper restriction on previously issued stock, because it was filed with the Delaware Secretary of State three minutes after the Certificate of Merger, which gave UAV the right to receive DWAC stock. The Court of Chancery held that it did not matter when the documents were filed because the Second Amended Charter was adopted — which is what matters under Delaware law — when DWAC’s shareholders ratified it, not when it was filed, and that happened days before the issuance of UAV’s stock. (As any real estate developer knows, timing is everything!)
The Court of Chancery also found that the lock-up was “reasonable to achieve a legitimate business purpose,” as required under Delaware law, because lock-ups are common in these types of mergers and promote stability. The court rejected Plaintiff’s argument that the lock-up was unreasonable and retaliatory because its intent and practical effect were to only lock up minority shareholders. First, the Court of Chancery rejected the notion that such a “good faith” analysis was necessary where the transaction was facially reasonable. Second, the court noted that it was DWAC that amended its charter, and there were no well-pled allegations that DWAC had any illicit motive (as opposed to TMTG).
The Court of Chancery likewise rejected Plaintiff’s claims for (1) breach of fiduciary duty and conspiracy claims against the TMTG board, and (2) aiding and abetting and conspiracy claims against DWAC’s board. (No collusion! No conspiracy!) At the center of these claims was Plaintiff’s theory that TMTG’s directors convinced DWAC’s directors to add the lock-up provision to retaliate against UAV and Cohen. The court rejected these claims, finding them based on “conspiracy theories” and “untenable leap[s]” instead of well-pled facts. (Strong decision. Very strong. Maybe one of the best decisions ever, frankly.)
The Court of Chancery then dismissed without prejudice the two remaining claims concerning the underlying consulting services agreement between UAV and Trump. The court found that a forum selection clause required these claims to be brought in Palm Beach County, Florida, and that they were better addressed in the lawsuit by TMTG in Florida state court.
Having dismissed the complaint in its entirety on other grounds, the Court of Chancery declared it unnecessary to reach the novel question of temporary presidential immunity, leaving that tantalizing question for another day. For now, the court’s order stands as a reminder that minority shareholders cannot paper over issues with their claims by simply pointing to an adverse effect they suffered and accusing the board or majority shareholders of retaliation.
(THANK YOU FOR YOUR ATTENTION TO THIS MATTER!)
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.
