As commented on in this space previously (here, here, and here), 2020 and the beginning of 2021 have seen an explosion in popularity of Special Purpose Acquisition Company (“SPAC”) deals. As readers know, SPACs have become one of the predominant vehicles for raising funds outside of the traditional IPO. Historically, SPACs have been the target of litigation relatively infrequently, but that trend is changing with the recent SPAC boom and the corresponding increase in public awareness and interest (including from regulators, short sellers, and the securities plaintiffs’ bar). Along with the increase in federal securities suits filed against pre- and post-de-SPAC companies, a trend likewise may be emerging in the Delaware Court of Chancery: a handful of stockholder suits alleging breach of fiduciary duties have been filed against SPAC entities and/or their boards of directors recently. We highlight a few below.
As recent decisions from the Delaware courts remind us (e.g., Murfey v. WHC Ventures, LLC), Delaware entities often have the ability to negotiate the scope of investors’ right to inspect company books and records—and perhaps even to eliminate those rights. But few corporations, partnerships, or LLCs appear to do so. With the proliferation of books-and-records litigation in recent years, however, more Delaware entities should consider whether opportunities may be available to limit the potential burden of such litigation and whether it would be prudent to explore those opportunities.