The Delaware Court of Chancery recently issued another decision regarding the statutory right to inspection of corporate books and records under Delaware General Corporation Law Section 220. In Melvin Gross v. Biogen Inc., the plaintiff-stockholder was permitted to obtain certain books and records, but the court limited inspection in key respects, and offered words of caution regarding confidentiality agreements. Companies facing Section 220 demands should review this decision and consider its lessons regarding the appropriate scope of inspection.
Special purpose acquisition companies, or SPACs, are popular new tools for raising capital that have garnered significant attention and momentum over the past year. In 2020, 248 SPAC initial public offerings raised over $83 billion in capital—more than quadrupling the number of such offerings from the previous year and eclipsing the amount of capital they raised in 2019 by $69 billion. The amount and value of such offerings is set to grow exponentially again in 2021; as of April 1, 2021, 298 SPAC initial public offerings raised over $97 billion and an additional 247 SPACs filed for an IPO that had yet to close.
There have been few fully litigated cases relating to SPACs. Although many of the cases that have been filed have focused on federal securities law, the nature of SPACs and so-called de-SPACing transactions also potentially implicate a host of state law issues, particularly in connection with the fiduciary duties of directors. This article addresses several issues under Delaware law and how the unique features of SPACs may have an impact on the applicability of those rules.
In the course of affirming a Court of Chancery decision in a seemingly routine dispute relating to a stockholder’s ability to nominate a slate of directors, the Delaware Supreme Court underscored the importance of parties’ (and counsel’s) candor with the Court and the potential consequences should the Court conclude it has been misled. (more…)
- Vice Chancellor Kathaleen McCormick has been nominated to become the next Chancellor of the Court of Chancery, replacing Andre Bouchard who previously announced his retirement, effective April 30, 2021. She will be the first woman to serve in that role.
- Lori W. Will, a partner at Wilson Sonsini in Delaware, has been nominated to fill McCormick’s seat as a Vice Chancellor.
We wish Chancellor Bouchard well in his retirement and thank him for his service on the Court, and look forward to the tenures of Chancellor McCormick and Vice Chancellor Will.
As commented on in this space previously (here and here), 2020 and the beginning of 2021 have seen an explosion in popularity of Special Purpose Acquisition Company (“SPAC”) deals. As readers know, SPACs have become one of the predominant vehicles for raising funds outside of the traditional IPO. Historically, SPACs have been the target of litigation relatively infrequently, but that trend is changing with the recent SPAC boom and the corresponding increase in public awareness and interest (including from regulators, short sellers, and the securities plaintiffs’ bar). Along with the increase in federal securities suits filed against pre- and post-de-SPAC companies, a trend likewise may be emerging in the Delaware Court of Chancery: a handful of stockholder suits alleging breach of fiduciary duties have been filed against SPAC entities and/or their boards of directors recently. We highlight a few below.
Securities class actions against life sciences companies are almost always second-order problems. The first-order problem is a business or regulatory setback that, when disclosed by the company or a third party, triggers a stock price decline. Following the decline, plaintiffs’ class-action attorneys will search the company’s previous public statements and seek to identify inconsistencies between past positive comments and the current negative development. In most cases, plaintiffs’ attorneys will seek to show that any arguable inconsistency amounts to fraud — that is, they will claim that the earlier statement was knowingly or recklessly false or misleading. Where a company makes the challenged statement in a public offering document — a registration statement or prospectus — plaintiffs need only show that the statement was materially false or misleading, not that it was made with scienter.
The Court of Chancery’s March 30 decision in LendingClub is another example of the significant difficulty plaintiffs face in adequately alleging demand futility in the context of a derivative corporate oversight claim governed by Caremark, especially so in the face of an applicable exculpatory provision contained in a corporate charter.