In a recently issued opinion in HControl Holdings v. Antin Infrastructure Partners, Chancellor McCormick of the Delaware Court of Chancery allowed a buyer to avoid closing on a transaction based on the failure of a closing condition related to the capitalization representation.
The boardroom frequently presents attorney-client privilege and work product protection issues. The Delaware Court of Chancery’s recent decision in Hyde Park Venture Partners Fund III, LP v. FairXchange, LLC, C.A. No. 2022-0344-JTL (Del. Ch. March 9, 2023), provides a reminder of the importance of vigilance in considering when and how to limit a director’s access to privileged materials in circumstances where directors’ interests may diverge – particularly where directors manage, or are affiliated with, investment funds owning stock of the Company.
In a recent post-trial opinion in In Re Mindbody, Inc., Stockholder Litigation, Chancellor Kathaleen McCormick of the Delaware Chancery Court gave new life to the Revlon enhanced scrutiny standard of review when she held that the former CEO of Mindbody, Inc. and its private equity acquiror were liable for orchestrating and failing to fully disclose what the court found to be a sweetheart deal that deprived stockholders of the benefit of a maximized purchase price.
Many private equity partnerships utilize a limited partner advisory committee (“LPAC”) as a mechanism to approve certain transactions, particularly those where a potential conflict of interest could exist. While Delaware corporate law provides well defined rules for how a self-interested transaction can be cleansed by disinterested directors or shareholders in the context of a corporation, the rules are less well defined when it comes to conflicts of interest for partnerships including private equity funds established as limited partnerships. The decision from In re SunEdison, Inc. demonstrates that the LPAC’s role in approving conflicted transactions remains a case-by-case, contract specific analysis.
Holly J. Gregory, co-chair of Sidley’s global Corporate Governance practice, sat down with WIRED to look at the business deals featured on HBO’s hit show “Succession.” In this video interview, she breaks down the deals and gives the inside scoop on everything from loan covenants to corporate mergers.
Recently, the Delaware Court of Chancery issued another ruling regarding the sale of Authentix Acquisition Company, Inc. (“Authentix”) to Blue Water Energy LLP (“Blue Water”), which was approved in 2017 by Authentix’s Board of Directors (the “Board”) and its controlling stockholders. The June 3, 2022 decision (Manti Holdings, LLC v. Carlyle Group Inc., C.A. No. 2020-0657-SG, 2022 WL 1815759 (Del. Ch. June 3, 2022)) denied in part a motion to dismiss and held that the gravamen of the plaintiffs’ post-closing money damages complaint—allegations that the defendants breached fiduciary duties regarding the sale—sufficiently stated claims upon which relief could be granted. The ruling underscores the need for heightened care by target companies and their equity sponsors when contemplating a transaction supported by an equity sponsor, including in their communications (or lack of communications) with management and other shareholders.
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…)
This is Part 2 in a 2-part series discussing developments around contractual waivers of the corporate opportunity doctrine in the private equity realm.
In Part 1, we discussed a recent Texas Court of Appeals case which held that members of a Delaware LLC can contract around (i.e., waive) the general principle protecting against usurpation of corporate opportunities. See Patterson v. Five Point Midstream Funds I and II, L.P., Case No. 01-19-00-643-CV (Tex. App. Dec. 8, 2020). We discussed that the Patterson decision followed a trend in Delaware that permits parties to contract around the traditional rules prohibiting usurpation of corporate opportunities. See Alarm.com Holdings, Inc. v. ABS Capital Partners Inc., No. CV 2017-0583-JTL, 2018 WL 3006118 (Del. Ch. June 15, 2018), aff’d, 204 A.3d 113 (Del. 2019). In December 2019, the Delaware Supreme Court in Alarm.com, affirmed a decision penned by Vice Chancellor Laster out of the Court of Chancery dismissing a claim under the Delaware Uniform Trade Secret Act (DUTSA).
In this Part 2, we will take a deeper dive into Alarm.com, the open questions it left, and potential new developments to keep an eye out for concerning waiver of usurpation of corporate opportunities in the private equity realm. This decision — and the open questions that have not yet been addressed by subsequent cases — is of particular importance to private equity owners that hold investment in companies governed by Delaware law.
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.
A recent Texas Court of Appeals case held that members of a Delaware limited liability company (LLC) can contract around (i.e., waive) the general principle protecting against usurpation of corporate opportunities. This decision is of particular importance to private equity owners that may hold other investments in companies in the same industry and closely follows recent Delaware case law. The case also should limit the ability for parties to forum shop and seek to obtain a different outcome on Delaware legal issues by filing in another forum, in this case Texas.