Vice Chancellor Laster Awards No Damages in Dispute Over Failed Anthem/Cigna Merger

On August 31, 2020, Vice Chancellor J. Travis Laster of the Delaware Chancery Court issued his long-awaited resolution of the prolonged litigation involving the failed merger of Anthem, Inc. and Cigna Corporation — two of the nation’s largest health insurance companies. As Vice Chancellor Laster found and detailed in the 311-page opinion, no party won this protracted battle, no merger was consummated, and no damages were awarded to either side.1 See In re Anthem-Cigna Merger Litigation, Case No. 2017-0114-JTL, at 305-06 (Del. Ch. 2020).

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Delaware Court of Chancery Reaffirms Heightened Standard for Caremark Claims — But Reminds That Outlier Facts Yield Outlier Results

On August 24, 2020, Vice Chancellor Sam Glasscock III issued a rare denial of a motion to dismiss so-called Caremark claims in a case against directors of AmerisourceBergen Corporation (the Company). Although the decision reiterates the significant pleading burden that such oversight claims must meet, and exemplifies that only extraordinary facts typically permit a plaintiff’s claims to proceed to discovery, it is also a useful reminder that board-level best practices can, among other things, help address and limit any such liability.

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Management of a Delaware Corporation Cannot Unilaterally Withhold Privileged Information From Directors

The Delaware Chancery Court recently found that directors serving on a special committee were entitled to privileged communications between management and company counsel because there was no formal board process to wall off those directors or other actions at the board level demonstrating “manifest adversity” between the company and those directors.

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Entire Fairness Standard Applied When Controlling Stockholder Negotiated Economic Terms With a Minority Stockholder Before MFW Protections Were in Place

The Delaware Chancery Court recently held that a going-private transaction was not entitled to the deferential business judgment standard of review because the controlling stockholder failed to condition the transaction on special committee and minority stockholder approval before engaging in substantive economic discussions with a minority stockholder. In re HomeFed Corp. S’holder Litig., C.A. No. 2019-0592-AGB (Del. Ch. July 13, 2020).

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Delaware Supreme Court Revives Stockholder Suit Challenging CEO’s Failure to Disclose Proposed Post-Merger Compensation Increase to the Board

The Delaware Supreme Court held that the Chancery Court erred in finding that a proposed compensation package that would substantially increase a CEO’s compensation post-merger was not material to the other directors’ approval of the merger.

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Caremark Claim Allowed to Proceed Against Audit Committee Members Based on Oversight Failures

The Delaware Chancery Court recently denied a motion to dismiss a shareholder derivative suit against directors and officers of Kandi Technologies Group, Inc., a publicly traded Delaware corporation based in China. Hughes v. Hu (Del. Ch. Apr. 27, 2020). The company had persistent problems with financial reporting and internal controls, encountering particular difficulties with related-party transactions dating back to 2010. In March 2014, the company disclosed material weaknesses in financial reporting and oversight, including a lack of audit committee oversight and a lack of internal controls for related-party transactions. The company pledged to remediate these problems. However, in March 2017, the company disclosed that its preceding three years of financial statements needed to be restated and that it continued to lack sufficient expertise and/or controls relating to accounting and SEC reporting.

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Delaware Supreme Court Upholds Federal Forum Provisions

On March 18, 2020, the Supreme Court, in Salzberg v. Sciabacucchi, upheld the validity under Delaware law of “federal-forum provisions,” in which Delaware corporations mandate that claims brought under the Securities Act of 1933 be filed in a federal court.

The highly anticipated opinion, reversing a Chancery Court decision, underscores Delaware’s preference for private ordering and confirms that corporate managers and stockholders have significant latitude in choosing the fora for certain types of litigation. While the decision confirms the facial validity of this particular type of forum provision, other ramifications of this decision remain unclear, and this topic will undoubtedly be the subject of further litigation or possibly legislative action.

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

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Charlotte K. Newell

New York
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Elizabeth Y. Austin

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Jaime A. Bartlett

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Jim Ducayet

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Yolanda C. Garcia

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James Heyworth

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Alex J. Kaplan

New York
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Jon Muenz

New York
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Ian M. Ross

Miami

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Hille R. Sheppard

Chicago
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Heather Benzmiller Sultanian

Chicago
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Robert S. Velevis

Dallas

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