In a March 1, 2023 opinion (In re McDonald’s Corp. Stockholder Derivative Litig., C.A. No. 2021-0324-JTL), the Delaware Court of Chancery dismissed duty of oversight claims against director defendants and provided helpful guidance on “mission critical” risks, the “gross negligence” standard under the business judgment rule, and redactions in productions of books and records under DGCL Section 220, including the potential that a motion to dismiss relying on overly redacted documents from a 220 production could be converted to a motion for summary judgment by the court. The court also entered an order on the same day, granting the defendants’ Rule 23.1 motion and dismissing the action in its entirety, including claims against the company’s former Global Chief People Officer. The court had previously denied a motion to dismiss those claims under Rule 12(b)(6) on January 25, 2023, as discussed further here, underscoring the important role of Rule 23.1 in derivative cases.
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00Nilofer Umarhttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngNilofer Umar2023-03-20 09:06:482023-09-08 10:24:44Court of Chancery Dismisses Director Oversight Claims Related to Mission Critical Risk
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.
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00Robert S. Velevishttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngRobert S. Velevis2023-03-15 09:26:152023-09-08 10:25:37The LPAC Strikes Back . . . When The Contract Says It Can
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.
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/11/MN-18360_Updated-Enhanced-Scrutiny-Blog-imagery_833x606_26.jpg606833Jim Ducayethttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngJim Ducayet2023-03-02 10:16:492023-09-08 10:26:30Court of Chancery Validates Putative Shares Issued in and After de-SPAC Mergers
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.
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.png00Jon Muenzhttps://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngJon Muenz2023-02-21 09:08:312023-09-08 10:27:20SPAC in Action: Court of Chancery Applies Entire Fairness Review in Declining to Dismiss SPAC Lawsuit
In a recent post on PharmExec.com, Paul Kalb (a co-founder of Sidley’s Global Life Science practice) and Coleen Klasmeier (a former partner who co-led Sidley’s Food, Drug and Medical Device practice) discuss how the intersection of the Caremark and Park doctrines impact life science companies, particularly when it comes to regulatory compliance and the liability of company officials.
https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2023/02/GLS-Blog_Generic-imagery-02.png606833Paul E. Kalb, M.D.https://ma-litigation.sidley.com/wp-content/uploads/sites/3/2022/08/sidleyLogo-e1643922598198.pngPaul E. Kalb, M.D.2023-02-16 14:11:462023-09-08 10:28:23Where Caremark Meets Park: A New Era of Regulatory Compliance and Criminal Liability
In a January 25, 2023 opinion (In re McDonald’s Corp. Stockholder Derivative Litig., C.A. No. 2021-0324-JTL), the Delaware Court of Chancery clarified that corporate officers’ fiduciary duties encompass a duty of oversight. As with directors, the duty of oversight requires that officers: (1) make a good faith effort to put in place reasonable information systems to generate the information necessary to address risks and report upward to higher level officers or the board; and (2) not consciously ignore red flags indicating that the company may suffer harm. The Court of Chancery also clarified that officers will not be held liable for violations of the duty of oversight unless they are shown to have acted in bad faith, as opposed to mere gross negligence.
The Delaware Court of Chancery recently issued an opinion that reminds controlling stockholders they can successfully implement a going private merger even when a competing bidder makes an offer that is substantially higher than that offered by the controlling stockholder. The court dismissed a lawsuit brought by former Eidos Therapeutics, Inc. stockholders against Bridgebio Pharma, Inc. and three of its directors over a merger in which Bridgebio, as Eidos’s controlling stockholder, acquired the remaining minority shares of Eidos stock. Smart Loc. Unions & Councils Pension Fund v. BridgeBio Pharma, Inc., No. 2021-1030-PAF, 2022 WL 17986515 (Del. Ch. Dec. 29, 2022).
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Court of Chancery Dismisses Director Oversight Claims Related to Mission Critical Risk
In a March 1, 2023 opinion (In re McDonald’s Corp. Stockholder Derivative Litig., C.A. No. 2021-0324-JTL), the Delaware Court of Chancery dismissed duty of oversight claims against director defendants and provided helpful guidance on “mission critical” risks, the “gross negligence” standard under the business judgment rule, and redactions in productions of books and records under DGCL Section 220, including the potential that a motion to dismiss relying on overly redacted documents from a 220 production could be converted to a motion for summary judgment by the court. The court also entered an order on the same day, granting the defendants’ Rule 23.1 motion and dismissing the action in its entirety, including claims against the company’s former Global Chief People Officer. The court had previously denied a motion to dismiss those claims under Rule 12(b)(6) on January 25, 2023, as discussed further here, underscoring the important role of Rule 23.1 in derivative cases.
(more…)
Nilofer Umar
Chicago
numar@sidley.com
Jarrett H. Gross
Sudeep S. Dhanoa
Chicago
sdhanoa@sidley.com
The LPAC Strikes Back . . . When The Contract Says It Can
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.
(more…)
Robert S. Velevis
Dallas
rvelevis@sidley.com
Nick Greenberg
Dallas
ngreenberg@sidley.com
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.
(more…)
Jim Ducayet
Chicago
jducayet@sidley.com
Jarrett H. Gross
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.
(more…)
Jon Muenz
New York
jmuenz@sidley.com
Where Caremark Meets Park: A New Era of Regulatory Compliance and Criminal Liability
In a recent post on PharmExec.com, Paul Kalb (a co-founder of Sidley’s Global Life Science practice) and Coleen Klasmeier (a former partner who co-led Sidley’s Food, Drug and Medical Device practice) discuss how the intersection of the Caremark and Park doctrines impact life science companies, particularly when it comes to regulatory compliance and the liability of company officials.
(more…)
Paul E. Kalb, M.D.
Delaware Court of Chancery Addresses Officer Oversight Obligations
In a January 25, 2023 opinion (In re McDonald’s Corp. Stockholder Derivative Litig., C.A. No. 2021-0324-JTL), the Delaware Court of Chancery clarified that corporate officers’ fiduciary duties encompass a duty of oversight. As with directors, the duty of oversight requires that officers: (1) make a good faith effort to put in place reasonable information systems to generate the information necessary to address risks and report upward to higher level officers or the board; and (2) not consciously ignore red flags indicating that the company may suffer harm. The Court of Chancery also clarified that officers will not be held liable for violations of the duty of oversight unless they are shown to have acted in bad faith, as opposed to mere gross negligence.
(more…)
Nilofer Umar
Chicago
numar@sidley.com
Jarrett H. Gross
Sudeep S. Dhanoa
Chicago
sdhanoa@sidley.com
Procedure Prevails When Applying MFW Framework to Interested Merger
The Delaware Court of Chancery recently issued an opinion that reminds controlling stockholders they can successfully implement a going private merger even when a competing bidder makes an offer that is substantially higher than that offered by the controlling stockholder. The court dismissed a lawsuit brought by former Eidos Therapeutics, Inc. stockholders against Bridgebio Pharma, Inc. and three of its directors over a merger in which Bridgebio, as Eidos’s controlling stockholder, acquired the remaining minority shares of Eidos stock. Smart Loc. Unions & Councils Pension Fund v. BridgeBio Pharma, Inc., No. 2021-1030-PAF, 2022 WL 17986515 (Del. Ch. Dec. 29, 2022).
(more…)
Fiona Collins
Elizabeth Y. Austin
Chicago
laustin@sidley.com
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