Sidley Perspectives on M&A and Corporate Governance: 2022 Year-in-Review

Each quarter, Sidley publishes Sidley Perspectives on M&A and Corporate Governance, a newsletter designed to capture what we consider the more significant legal developments in M&A, corporate governance, and related areas. As we begin a new year, Sidley would like to share as a resource for our readers a hyperlinked list of Sidley-authored articles that were included or referenced in the newsletter during 2022. The list, available here, serves as somewhat of a year-in-review covering the key developments in 2022.

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Coordinated Contempt Leads to Unprecedented Remedy

The Delaware Court of Chancery (the Court) recently issued an unprecedented order to divest shares in a Delaware corporation. In In re Stream TV Networks, Inc. Omnibus Agreement Litigations, Vice Chancellor Laster found that the divested parties acted in contempt to circumvent a prior decision of the Court and, as a remedy, invoked a rule allowing the Court to reassign ownership of any real or personal property within the jurisdiction of the Court. The decision is a reminder to Delaware litigants of the broad authority of the Court and its willingness to issue “extraordinary remedies” to ensure a fair and equitable result.

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Delaware Chancery Court Finds Scope of Restrictive Covenants Unreasonable in the Context of a Business Sale

A recent Delaware Chancery Court decision addressed whether a restrictive covenant agreement was enforceable against a defendant who entered into that agreement willingly (and who waived his right to contest its reasonableness) as part of a sale of a business. Kodiak Building Partners, LLC v. Adams (Del. Ch. Oct. 6, 2022). The court held that the restrictive covenants were unreasonable in their geographic scope and scope of restricted activities because they were broader than necessary to protect the acquirer’s legitimate economic interests. This decision provides lessons for lawyers seeking to draft clear, effective and enforceable restrictive covenant provisions.

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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.

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Delaware Reminds LLCs: Breaking Up Is Hard to Do

In In re: Dissolution of Doehler Dry Ingredient Solutions, LLC (Sept. 15, 2022), the Delaware Court of Chancery recently restated the high bar for a claim for judicial dissolution to succeed. Following his removal by written consent, a minority member and former manager of a Delaware limited liability company brought a claim for judicial dissolution of the entity. The former manager alleged that judicial dissolution was warranted due to alleged breaches of the company’s operating agreement, a potential voting deadlock on important matters, and alleged breaches of fiduciary duties.

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Camping World Plaintiffs Left Out In The Cold: Application of Zuckerberg Test For Demand Futility Bars Claim

In October 2021, in United Food v. Zuckerberg, the Delaware Supreme Court adopted a new three-part test for evaluating whether demand is futile in derivative suits. Prior to Zuckerberg, demand futility was long governed by Aronson v. Lewis (1984) and Rales v. Blasband (1993). The Aronson test excuses demand as futile if the allegations raise a reasonable doubt that “the directors are disinterested and independent” or that “the challenged transaction was otherwise the product of a valid business judgment.” The Rales test excuses demand if the allegations create a reasonable doubt that a majority of the board in place at the time of the demand “could have properly exercised its independent and disinterested business judgment in responding to a demand.” Without expressly overruling Aronson and Rales, the Delaware Supreme Court in Zuckerberg adopted a new three-part test, applied on a director-by-director basis, that excuses demand as futile if any of the three parts is true for at least a majority of the members of the board. The Delaware Supreme Court’s affirmance of the Court of Chancery’s holding in In re Camping World that the plaintiffs did not properly plead that demand was futile further cements the utilization of the Zuckerberg standard as the governing law in demand futility analysis.

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Thoughts on Third-Party Liability – Tortious Interference vs. Aiding and Abetting the Breach of a Fiduciary Duty

A recent Delaware Court of Chancery ruling provides useful clarity on the differences between two commonly asserted claims of third-party liability: tortious interference and aiding and abetting the breach of a fiduciary duty. In Atlantic NWI, LLC v. The Carlyle Group Inc., et al., https://courts.delaware.gov/Opinions/Download.aspx?id=339620, Vice Chancellor Glasscock discussed how and why these claims differ.

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<a target=‘_blank’ href="https://www.sidley.com/en/people/s/stern-andrew-w">Andrew W. Stern</a>

Andrew W. Stern

New York
<a target=‘_blank’ href="https://www.sidley.com/en/people/n/newell-charlotte-k">Charlotte K. Newell</a>

Charlotte K. Newell

New York
<a target=‘_blank’ href="https://www.sidley.com/en/people/a/austin-elizabeth-y">Elizabeth Y. Austin</a>

Elizabeth Y. Austin

Chicago
<a target=‘_blank’ href="https://www.sidley.com/en/people/b/bartlett-jaime-a">Jaime A. Bartlett</a>

Jaime A. Bartlett

San Francisco
<a target=‘_blank’ href="https://www.sidley.com/en/people/d/ducayet-james-w">Jim Ducayet</a>

Jim Ducayet

Chicago
<a target=‘_blank’ href="https://www.sidley.com/en/people/g/garcia-yolanda-c">Yolanda C. Garcia</a>

Yolanda C. Garcia

Dallas
<a target=‘_blank’ href="https://www.sidley.com/en/people/h/heyworth-james">James Heyworth</a>

James Heyworth

New York
<a target=‘_blank’ href="https://www.sidley.com/en/people/k/kaplan-alex-j">Alex J. Kaplan</a>

Alex J. Kaplan

New York
<a target=‘_blank’ href="https://www.sidley.com/en/people/l/lopez-jodi-e">Jodi E. Lopez</a>

Jodi E. Lopez

Los Angeles
<a target=‘_blank’ href="https://www.sidley.com/en/people/m/muenz-jon">Jon Muenz</a>

Jon Muenz

New York

<a target=‘_blank’ href="https://www.sidley.com/en/people/r/ross-ian-m">Ian M. Ross</a>

Ian M. Ross

Miami
<a target=‘_blank’ href="https://www.sidley.com/en/people/s/sheppard-hille-r">Hille R. Sheppard</a>

Hille R. Sheppard

Chicago
<a target=‘_blank’ href="https://www.sidley.com/en/people/s/sultanian-heather">Heather Benzmiller Sultanian</a>

Heather Benzmiller Sultanian

Chicago
<a target=‘_blank’ href="https://www.sidley.com/en/people/v/velevis-robert-s">Robert S. Velevis</a>

Robert S. Velevis

Dallas
<a target=‘_blank’ href="https://www.sidley.com/en/people/w/wechkin-robin-e">Robin E. Wechkin</a>

Robin E. Wechkin

Seattle

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