Court of Chancery Validates Putative Shares Issued in and After de-SPAC Mergers
On February 21, 2023, Vice Chancellor Will of the Delaware Court of Chancery issued an opinion in the In re Lordstown Motors Corp. case explaining the court’s grant of Lordstown Motor Corporation’s (Lordstown) petition under 8 Del. C. § 205 validating an amendment to the Lordstown certificate of incorporation that increased the corporation’s authorized share count as well as the shares issued pursuant to that amended certificate of incorporation. In six sequential hearings the day before the opinion was issued, the court granted from the bench the Lordstown petition and petitions filed by five other companies that had merged with special purpose acquisition companies (SPACs) using a transaction structure for so-called “de-SPAC mergers” (through which the SPAC acquires a target) that has been widely used over the past few years.
SPAC in Action: Court of Chancery Applies Entire Fairness Review in Declining to Dismiss SPAC Lawsuit
The recent Court of Chancery decision in Delman v. GigAcquisitions3 offers some interesting insights into the circumstances in which “entire fairness” review applies, and where “Corwin cleansing” can be used to achieve a lesser review standard.
Court Takes Buzzsaw To Bid To Arbitrate Claims Against Buzzfeed
The Delaware Court of Chancery recently held that BuzzFeed was not required to arbitrate stock conversion claims brought by its former employees following Buzzfeed’s 2021 SPAC merger. Vice Chancellor Zurn granted BuzzFeed and its officers and directors an anti-arbitration injunction and rejected Plaintiffs’ argument that the Court of Chancery lacked subject matter jurisdiction over the claims. In doing so, the court offered a thoughtful application of contract law and law on arbitrability to a post-SPAC transaction dispute.
Contractarian Principles Carry the Day in De-SPAC Merger Dispute
As previously covered in this blog, the recent increase in litigation arising out of de-SPAC mergers has left some open questions as to how courts will apply traditional legal principles to the unique SPAC structure. The Delaware Court of Chancery, for example, stated in Lordstown Motors that SPAC litigation “raises emerging issues of Delaware law,” while at the same time cautioning in MultiPlan that “well-worn fiduciary principles” generally apply to claims for breach of fiduciary duty in a de-SPAC merger. There understandably is some uncertainty in this space — particularly given the recent stipulation of settlement filed in the MultiPlan litigation, which some commentators had hoped would provide further insights. Thankfully, the Delaware Court of Chancery has recently provided some potentially helpful guidance in the ongoing P3 Health Group Holdings litigation. There, Vice Chancellor Laster addressed claims for breach of a limited liability company agreement related to a de-SPAC merger. In granting in part and denying in part defendants’ motion to dismiss, the Vice Chancellor provided some clarity on how to assess the nature of the pre- and post-de-SPAC merger entities, and in doing so adhered closely to standard principles of Delaware contract law.
de-SPAC Mergers Facing Increased Scrutiny
Over the last year and a half we have seen an increased volume of complaints filed against SPAC boards in the Delaware Court of Chancery, challenging their decisions regarding de-SPAC mergers. In this article, Charlotte Newell, James Heyworth, and Josh DuClos discuss the increased scrutiny. (more…)
Another Section 220 Landmine: Opportunistic Third-Party Challenges to Confidentiality
Delaware Section 220 corporate books and records inspection demands have long been a precursor to stockholder litigation. Companies often challenge the propriety and scope of inspection demands and, even when companies ultimately produce books and records for inspection, they routinely do so subject to a confidentiality agreement. However, a February 28, 2022 letter decision in In re Lordstown Motors Corp., Stockholder Litigation illustrates how confidentiality agreements may not fully protect the information in those books and records from public disclosure or use in other litigation.
Expansive New SEC Rule Proposals Seek to Rewrite the SPAC Playbook
On March 30, 2022, the U.S. Securities and Exchange Commission (SEC) issued proposed rules and amendments relating to special purpose acquisition companies (SPACs), shell companies and the use of projections in SEC filings that, if adopted, would significantly rewrite the playbook for SPAC initial public offerings (IPOs) and acquisitions of private operating companies by SPACs (or “de-SPAC” transactions).1 In particular, the proposed rules (i) would require enhanced disclosures and increase potential liability under the federal securities laws for shell companies (including SPACs), target companies and investment banks participating in de-SPAC transactions, (ii) provide updated guidance regarding the use of projections in all SEC filings and (iii) propose a new safe harbor for SPACs under the Investment Company Act of 1940.
Sidley Perspectives on M&A and Corporate Governance
Sidley is pleased to share the March 2022 issue of Sidley Perspectives on M&A and Corporate Governance, a quarterly newsletter designed to keep you current on what we consider to be the most important legal developments involving M&A and corporate governance matters. (more…)
Guarding Its Turf: SPAC-Related Chancery Opinion May Force Companies to Defend Disclosure-Based Claims on Multiple Fronts
Companies that have endured a corporate trauma are often faced with a two-headed monster of litigation: first, a federal securities class action, typically alleging that misstatements or omissions inflated the company’s stock price because the company failed adequately to predict, or disclose the likelihood of, the trauma; and, second, stockholder litigation claiming that the company’s directors (and sometimes officers) breached their state-law fiduciary duties in subjecting the company to the costs of defending or settling the securities litigation. In order to avoid (or at least defer unless and until necessary) the expense and distraction of litigating identical or overlapping issues in two or more fora, defendants often have sought a stay, by agreement or motion, of the fiduciary duty litigation, pending at least resolution of a threshold motion to dismiss in federal court. This approach has proven beneficial for all involved because it allows the parties to concentrate their resources in the federal proceeding that will determine whether viable disclosure claims have been alleged; if those claims fail, then there may no longer be any basis to pursue the state-law fiduciary duty claim and all can save the resources of litigating those claims in the meantime. (more…)
Litigation Trends in Delaware and How Businesses and Boards Can Mitigate Risk
New structures, new rules? Delaware’s Chancery Court provides guidance on disclosure, conflicts, and risk allocation. We take a look at the latest Delaware rulings and what they say about SPAC directors’ fiduciary duty, as well as COVID’s effect on M&A deals, and how corporations and boards can mitigate their liability. Join host and Sidley partner, Sam Gandhi, as he speaks with two of the firm’s thought leaders on these subjects — Jim Ducayet and Charlotte Newell.