Showing 7 posts in Boards of Directors.
Supreme Court Finds Contractually Required Board Committee Determination Under Stock Option Agreements Did Not Bar Judicial Review
Terrell v. Kiromic Biopharma Inc., No. 299, 2022 (Del. May 4, 2023)
This dispute between a company and a former director involved the meaning of a stock option agreement and option grant notice. The Court of Chancery had found that, under a contractual alternative dispute resolution provision, the dispute was to be resolved in accordance with a board committee’s interpretation of the relevant documents. The trial court stayed the action for that purpose. After the committee resolved the issue in the company’s favor, the trial court promptly dismissed the complaint for lack of subject matter jurisdiction. On appeal, the Supreme Court found no error in the trial court’s stay to allow the committee’s determination in the first instance but reversed and remanded for the trial court to review the matter before dismissing the action. The Supreme Court explained that the provision “is an expert determination, not an arbitration, and because it requires the Committee to reach legal determinations, not issue findings of fact within its area of expertise, the Court of Chancery is not required to defer to the Committee's conclusions." Thus, the trial court was required to engage in a de novo interpretation of the agreements.
Chancery Sides With Board in Dispute Over Stockholder’s Compliance With Advanced Notice Bylaws to Nominate Directors
Jorgl v. AIM ImmunoTech, Inc., 2022-0669-LWW (Del. Ch. Oct. 28, 2022)
The Court of Chancery rejected a stockholder’s bid for a preliminary mandatory injunction directing the board of AIM ImmunoTech, Inc. to include his nominees on the ballot of potential directors. The dispute centered on whether the board had wrongfully rejected the stockholder’s nominees based upon the board’s suspicion that the stockholder had not complied with the company’s advanced notice bylaws requiring the stockholder to disclose “all arrangements or understandings” with any of his nominees. Because evidence suggested that the stockholder and his nominees may have been part of an undisclosed plan to commence a proxy contest, the stockholder could not establish at the preliminary injunction stage that the board erred as a matter of law in rejecting his nominations. The Court also concluded that the stockholder failed to establish, as a matter of law, that the board acted with an entrenchment motive in rejecting the nominations. Accordingly, the Court found that the stockholder could not meet the heavy burden necessary to obtain preliminary mandatory injunctive relief.
Board Lacks Standing to Bring Motion to Dismiss Because It Delegated That Authority to Special Litigation Committee
Rowan v. Infinity Q Capital Mgmt., LLC, C.A. No. 2022-0176-MTZ (Del. Ch. Sep. 12, 2022)
If a conflicted board delegates all authority over derivative claims to a special litigation committee (“SLC”), then the board may lack authority separately to assert procedural defenses, including a motion to dismiss under Court of Chancery Rule 23.1. But whether a board has given up this authority depends upon the sequence and terms of the SLC’s creation. More ›
In re Match Grp. Inc. Deriv. Lit., Cons. C.A. 2020-0505-MTZ (Del. Ch. Sep. 1, 2022)
Under the so-called MFW framework, a transaction with a controller is subject to business judgment review, rather than the more exacting entire fairness review, if the transaction satisfies all six procedural protections elaborated in Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014). In simple terms, the MFW framework mimics the two key protections that exist in a transaction with a third party by requiring an independent negotiating agent (i.e., a board committee) and approval by the majority of the non-controlling stockholders. But the standard can be difficult to meet because the failure to comply with a single condition is fatal. Nonetheless, here, the Court of Chancery concluded that the transaction satisfied all six elements of the MFW framework because the as-pled facts established that the special committee had necessary authority, that a majority of the special committee was sufficiently independent, that the special committee satisfied its duty of care in negotiating a fair price, and that the minority stockholders approved the transaction through an uncoerced and informed vote. Because the plaintiff did not plead any claim that would overcome the application of the business judgment rule, the Court dismissed the case.
Diep v. Trimaran Pollo Partners, No. 313, 2021 (Del. June 28, 2022)
After the Court of Chancery denied an initial motion to dismiss, the company formed a special litigation committee (“SLC”) to investigate the claims and determine whether the company should allow the plaintiff to proceed, take over the litigation, or move to dismiss. The SLC investigated and then moved to dismiss the claims, which the Court of Chancery granted under Zapata. Among other rulings, the Supreme Court affirmed and upheld the Court of Chancery’s rejection of the plaintiff’s contention that the SLC did not meet its burden to establish the independence of the SLC members. The Supreme Court agreed with the trial court that the record did not establish that as directors the SLC members had specific knowledge of the facts and circumstances that led the Company, as nominal defendant, to join the initial motion to dismiss those claims that the SLC later was charged with investigating. Justice Valihura dissented because she believed that material issues of fact existed regarding the SLC members’ independence.
Chancery Upholds Fiduciary Duty Claims Arising Out Of Deal Involving an Alleged Control Group That Included Non-Stockholders and a Sale Process Managed By a Disinterested and Independent Special Committee
In re Pattern Energy Grp. Inc. Stockholders Litig., C.A. No. 2020-0357-MTZ (Del. Ch. May 6, 2021)
This decision mostly denying a motion to dismiss examines several important issues in post-closing M&A fiduciary duty litigation relevant to stating a claim and overcoming an otherwise claim-cleansing stockholder vote under the Corwin doctrine. These include what it takes to adequately plead the existence of a control group, a fraud-on-the-board theory, a bad faith breach of fiduciary duty by admittedly disinterested and independent directors charged with managing a sale process and overseeing potential conflicts, and claims against individual officers. Core to the plaintiff’s well-pled complaint in this action were allegations that the committee and certain officers favored a buyer preferred by a private equity fund, which, among other things, formed the company, controlled its upstream supplier, and held significant contractual consent rights. More ›
Chancery Resolves Dispute Between Competing Special Committees, Finding Second Committee Could Not Voluntarily Dismiss Suit Brought By The First Committee Under The Zapata Framework
This decision addresses a matter of first impression arising out of a dispute pitting two special committees of the same company, WeCompany (“WeWork” or the “Company”), against one another over control of a lawsuit on the Company’s behalf. The lawsuit involved claims against the Company’s putative controlling shareholders, SoftBank Group Corp. and SoftBank Vision Fund (AIV MI) L.P. (together, “SoftBank”), for abandoning a multi-step agreement by which SoftBank committed to a $3 billion tender offer for WeWork’s shares in addition to providing equity and debt financing (the “Transaction”). The same two-member committee that negotiated the Transaction on the Company’s behalf (the “Transaction Committee”), initiated the lawsuit with the support of the Company’s management (including WeWork’s Chief Legal Officer) as well as the Company’s outside counsel, Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) More ›Share