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Director Independence and Conflicts

01 November 2021

Delaware Court Enjoins Shareholder Meeting for Disclosure Violations

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The Delaware Chancery Court recently issued a rare preliminary injunction delaying the shareholder vote on a proposed merger between QAD, a cloud-based enterprise software company, and the private equity fund Thoma Bravo. The Court required additional disclosures to shareholders but stopped short of enjoining the deal entirely. The case provides useful guidance on conflicts-related disclosure where a controlling shareholder and minority shareholders are “competing” for consideration from a third-party acquirer. It also highlights Delaware’s reluctance to enjoin a transaction that offers shareholders a premium in the absence of a rival bidder, leaving post-closing damages claims as the sole remedy for shareholders who believe the deal involved contractual or fiduciary duty violations. (more…)

13 October 2021

Delaware Chancery Court Affirms Importance of Director Oversight in Wake of Boeing Crashes

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Two years ago the Delaware Supreme Court, in Marchand v. Barnhill, allowed Caremark claims to proceed against a group of directors in connection with a listeria outbreak at their company’s ice cream manufacturing plants. Applying Caremark — often quoted as “possibly the most difficult theory in corporat[e] law” — the court determined the board failed to implement reasonable oversight and monitoring on “mission critical issues.” There, food safety was “mission critical.” Since Marchand¸ courts have applied these principles to, among other cases, a biopharmaceutical company’s failure to comply with FDA regulations and an auto parts company’s failure to properly monitor its financial reporting.  Now, the Delaware Chancery Court has provided another guidepost, this time in the aerospace industry, finding that certain of Boeing’s stockholders adequately pled Caremark claims against Boeing’s Board. (more…)

27 September 2021

Bear Market For Plaintiffs’ Liquidity-Based Conflict Allegations

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In M&A litigation, plaintiffs’ lawyers see actual or perceived conflicts of interest as gold.  Conflict allegations can take many forms and arise in a variety of contexts: for example, a board member of a target company who is offered employment by the would-be acquirer, or a controlling stockholder who sits on both sides of a transaction.  Another common example, and the focus of this post, is a board member or stockholder whose financial interests are alleged to diverge from other stockholders because of a need or desire to quickly liquidate holdings (referred to as a “liquidity-based conflict”). (more…)

30 August 2021

A Delaware Corporate and M&A Checklist: 11 Cases That Every Practitioner Should Know

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As regular readers know, this blog typically covers the latest developments and trends emerging from the Delaware Court of Chancery. For this post, however, we revisit first principles and remind our readers of the bedrock decisions of modern Delaware M&A practice, and highlight 11 key decisions with which every practitioner should be familiar. (more…)

08 July 2021

When Even “Entirely Fair” Is Not Enough

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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.

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10 June 2021

Chancery Denies Corwin Cleansing In Light of Process Concerns

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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.

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27 May 2021

Nevada Splits from Delaware, Applies Business Judgment Rule Broadly

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One focus of this blog has been identifying trends in other state’s corporate law that compares or contrasts with Delaware’s. Nevada in particular has long been in competition with Delaware as a potential place of incorporation. A new decision by the Nevada Supreme Court may further cement Nevada’s status as a potential competitor to Delaware for certain corporations by demonstrating the difficulty of rebutting the business judgment rule.

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20 May 2021

New Chancellor’s First Decision Reaffirms the Robust Protections Afforded to Transactions Following the MFW Roadmap

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Last week, newly sworn-in Chancellor McCormick issued her first decision in her new role, Franchi v. Firestone, granting a motion to dismiss a shareholder complaint regarding a going-private transaction with a controlled shareholder. In doing so, the new Chancellor affirmed that the MFW roadmap continues to provide robust protection to such transactions, so long as they meet the formal requirements set out in MFW(more…)

13 January 2021

Court of Chancery Allows Breach of Fiduciary Duty Claims Stemming from CBS-Viacom Merger to Proceed

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On December 29, 2020, in a 76-page memorandum opinion, the Court of Chancery denied a motion to dismiss breach of fiduciary duty claims against National Amusements, Inc. (NAI), Viacom Inc.’s controlling stockholder; Shari Redstone, the director, president, and controlling stockholder of NAI; and four individual NAI directors. All were sued for their roles in the Viacom/CBS Corp. merger in a decision that is important for mergers in which a controlling party stands on both sides of a transaction and receives nonratable benefits that are measured in terms of control, rather than based on merger consideration.

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07 January 2021

Chancery Court Tosses Claim Regarding Disclosures Around Equity Incentive Plans

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Just before year-end, the Delaware Court of Chancery issued a notable decision regarding disclosures around equity incentive plans. On December 16, 2020, the Chancery Court dismissed a stockholder’s direct claim that members of the board of Columbia Financial Inc. (“Columbia” or the “Company”) breached fiduciary duties for failing to disclose purportedly material information regarding equity awards provided to directors. The decision provides guidance on standards for adequate disclosures and affirms the Chancery Court’s willingness to decide questions of materiality at the pleading stage.

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