With a Fresh Look at the Facts in Columbia Pipeline, the Delaware Supreme Court Continues to Narrow Aiding and Abetting Liability for Acquirers
Overview and Legal Framework
On June 17, 2025, the Delaware Supreme Court for the second time in six months reversed a post-trial damages award against an acquiring company accused of aiding and abetting breaches of fiduciary duty by target company management. The June 17 decision is In re Columbia Pipeline Group, Inc., Merger Litigation, 2025 WL 1693491 (Del. June 17, 2025). The earlier decision is In re Mindbody, Inc. Stockholder Litigation, 332 A.3d 349 (Del. 2024).
In both cases, stockholder plaintiffs alleged that target company officers looking for an exit elevated their personal financial interest in getting a deal done over their fiduciary duty to extract the best possible sale price for stockholders. In Mindbody, the plaintiffs’ theory was that the acquirer aided and abetted management’s breach of disclosure duties by allowing a misleading proxy statement to be filed. In Columbia Pipeline, the plaintiffs’ theory was broader: Plaintiffs alleged that the acquirer aided and abetted not only disclosure breaches but also sale process breaches throughout the parties’ negotiations. In both cases, the Supreme Court focused on a single element of an aiding and abetting claim — “knowing participation” in the underlying breach. The Court set out detailed and demanding standards for both “knowing” (i.e., scienter), and “participation” (i.e., substantial assistance).
The Mindbody court made two principal innovations in the analysis of “knowing.” First, the Court disavowed signals in earlier case law suggesting that constructive knowledge — a “should have known” standard — is sufficient. The Court held that knowledge means actual knowledge. Second, the Court held that scienter is a two-part inquiry. The plaintiff must show that the aider and abettor actually knew both (1) that the target company’s officers or directors breached fiduciary duties, and (2) that the acquirer’s own conduct was wrongful. Surveying the law in the area generally, the Mindbody court noted the absence of any “Delaware case finding liability against a third-party bidder for aiding and abetting a breach of fiduciary duty.”
The Supreme Court decided Mindbody in late 2024. The Court of Chancery issued its post-trial ruling in Columbia Pipeline in 2023, more than a year earlier. Consequently, as the Supreme Court noted on the first page of its Columbia Pipeline decision, the Court of Chancery did not, “for understandable reasons,” apply Mindbody’s new scienter framework. The Supreme Court thus had the option of resolving the appeal with a single sentence remanding the case for further consideration in light of Mindbody. But the Supreme Court did the very opposite, delving deeply into the record in its 100-page opinion, and applying the new knowledge standard to the facts in the first instance. The court also opted for a “more is more” approach in a second way. After concluding that plaintiffs had failed to establish the “knowing” prong of “knowing participation” — and that as a logical matter they could not satisfy the “participation” prong either — the Supreme Court proceeded to analyze the participation prong from the ground up too.
The Courts’ Competing Analyses Regarding Aiding and Abetting a Sale Process Breach
The Court of Chancery’s view. In concluding that the acquiring company knowingly participated in management’s sale process breach in Columbia Pipeline, the Court of Chancery relied on key insights into the personality and psychology of the principal players. Before 2015, the target company, Columbia Pipeline, was a wholly-owned subsidiary of a publicly traded utility. In 2014, its C-suite officers were “aging executives” looking for an exit. In the Court of Chancery’s view, they structured first a 2014 spin-off from the utility and then a 2015 acquisition by TC Energy Corporation (TransCanada) in an effort to trigger change of control provisions, “reap their benefits and retire upon a sale of the new entity.” The officers settled before trial for $79 million.
A principal negotiator on Columbia’s side was the CFO, who had a longstanding relationship with TransCanada’s VP for Strategy and Corporate Development. That relationship was the foundation for much of the wrongdoing in the case. The Court of Chancery found that the CFO was an “M&A neophyte” who provided TransCanada’s VP with information about Columbia’s positions and motivation that he should have kept to himself. On the other side, TransCanada’s VP “knew that [Columbia’s CEO and CFO] were breaching their duty of care by acting like a bunch of noobs who didn’t know how to play the game.” Among other things, TransCanada reneged on a deal at $26 per share (in cash and stock) once the CFO had let slip how desperate Columbia was to complete the transaction. TransCanada offered $25.50 in cash and threatened to make that offer public if Columbia did not accept it. The deal ultimately closed at $25.50.
The Court of Chancery imposed damages of $1 per share, finding that the $26 cash and stock deal would have been worth $26.50 at closing. That amounted to class-wide damages of $398 million. After making a 50% reduction corresponding to the comparative fault of the settling officer defendants, the Court of Chancery awarded damages of $199 million for the sale process breach.
The Supreme Court’s view. The Supreme Court saw matters differently, particularly under the new Mindbody scienter standard. The Court of Chancery had deemed it sufficient that TransCanada should have known that the Columbia executives were motivated by self-interest in a lucrative retirement package. But under the actual knowledge standard, that was insufficient to show that TransCanada knew even of the executives’ breaches. The evidence further fell short on what the Supreme Court called the “second scienter requirement” — TransCanada’s knowledge that its own conduct was wrongful. With respect to TransCanada’s most egregious conduct — reneging on the $26 offer — the Supreme Court rejected the factual premise on which the Court of Chancery’s holding rested. In the Supreme Court’s view, the parties had never reached a binding agreement at $26. More generally, the Supreme Court emphasized the structural difficulty of proving any aiding and abetting claim against an acquirer. “The dynamic of arm’s-length negotiations, in which both sides are striving for the most favorable price, should render such claims the most difficult to prove.”
In addition to the demanding knowledge standard, the Supreme Court stressed that the aider and abettor’s participation “must be of an active nature.” The court listed three categories of “active” assistance, and suggested that a claim fails if it does not come within one of the three: (1) colluding or conspiring with the primarily liable party, (2) creating the condition that gives rise to a conflict of interest, or (3) encouraging the primarily liable party to breach duties. At the same time, however, the court included a catch-all category for “substantially assist[ing]” the breach, which re-injects some flexibility (or perhaps uncertainty) into the analysis.
On the other side of the ledger — outside the reach of an aiding and abetting claim — the Supreme Court placed “aggressive bargaining tactics,” “bluffing,” and “stretch[ing] the bounds of hard bargaining so ungraciously as to unsettle the polite observer.” Those tactics are acceptable when deployed by an acquirer, who is entitled to “tak[e] advantage of the other side’s weakness and negotiat[e] aggressively for the lowest possible price.”
The Courts’ Competing Analyses Regarding Aiding and Abetting a Disclosure Breach
Mindbody very explicitly changed the terrain for claims of aiding and abetting disclosure violations — which unlike claims for aiding and abetting sale process violations were directly at issue in the case. The Court of Chancery in Mindbody held that an acquirer’s failure to comply with its own contractual duties to review and identify defects in the target’s proxy statement could constitute aiding and abetting the primary party’s breach of fiduciary duties. The Supreme Court in Mindbody rejected that holding and reversed the judgment against the acquirer.
That reversal, as noted, came in late 2024, after the Court of Chancery issued its post-trial Columbia Pipeline ruling in 2023. In fact, the Court of Chancery in Columbia Pipeline relied on the superseded Court of Chancery decision in Mindbody.
As a result, the Supreme Court could here again have resolved the appeal with a single sentence, remanding for further consideration in light of Mindbody. And here again, it did not do so, electing instead to apply the new law to the facts in the first instance. On the “knowledge” prong of knowing participation, the Supreme Court determined that TransCanada did have actual knowledge that some of the challenged statements in the proxy were false or misleading. But plaintiffs failed to prove the “second scienter requirement — that the aider and abettor have actual knowledge that its own conduct was legally improper.” The facts showed only that the acquirer recklessly disregarded its contractual obligation to review the proxy — not that it knew that by doing so, it had affirmatively aided disclosure breaches by Columbia’s management.
The facts fell short on substantial assistance too. The Supreme Court again emphasized that the conduct of an aider or abettor must be active, which in the context of proxy disclosures means more than failing to identify false or misleading statements. Active participation appears to require that an aider and abettor propose including false or misleading statements, or suggest omitting material information. The Supreme Court also noted that with one exception, Columbia itself had all of the information necessary to make accurate and complete disclosures; the information was not in TransCanada’s exclusive possession. But the court did not specify whether different facts on that score might have led to a different outcome — and given the court’s emphasis on the active/passive dichotomy, that seems unlikely.
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.
