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Showing 51 posts in Controlling Stockholder.
Chancery Denies Motion to Dismiss Finding Primedia Argument Inapplicable
In Re Orbit/FR, Inc. Stockholders Litig., C.A. No. 2018-0340-SG (Del. Ch. January 9, 2023)
In In re Primedia, Inc. S’holders Litig., 67 A.3d 455 (Del. Ch. 2013), the Court examined whether a litigation asset being pursued derivatively was extinguished by the sale of the company to a third party that had no interest in pursuing the claim and had not valued the claim as an asset in the merger. Primedia sets forth certain stringent standards to assert a claim that the merger was unfair based on such a derivative claim. More ›
Chancery Finds SPAC’s Sponsor and Board Potentially Violated Fiduciary Duties by Depriving Public Stockholders of the Information Material to the Stock Redemption Decision
Delman v. GigAcquisitions3 LLC, C.A. No. 2021-0679-LWW (Del. Ch. January 4, 2023)
Delaware law establishes that fiduciaries of a corporation cannot be exempted from "their loyalty obligation and the attendant equitable standards of review that [the] court will apply to enforce it." In this case, following last year's Multiplan decision (discussed here), stockholders alleged that a SPAC's sponsor and board members breached their fiduciary duties by failing to disclose information material to the stockholders' decision on whether to redeem the stock prior to the de-SPAC transaction. This decision denies the defendants' motion to dismiss and finds that stockholders properly brought the lawsuit as a class action based on the fact that the alleged harm they suffered was individually compensable. More ›
Citing MFW, Court of Chancery Dismisses Merger Challenge
Smart Local Unions and Councils Pension Fund v. BridgeBio Pharma, Inc., C.A. No. 2021-1030-PAF (Del. Ch. Dec. 29, 2022)
Typically, the “entire fairness” standard of review applies to any transaction in which a controlling stockholder acquires the outstanding minority shares. But, under the MFW framework, the more lenient business judgment standard of review may apply if the controller can establish that, among other things, an independent, fully-empowered special committee met its duty of care to negotiate a fair price for the shares and also that an informed, uncoerced majority of the minority stockholders approved the transaction. More ›
Chancery Finds Plaintiff Failed To State A Non-Exculpated Claim Against Special Committee Defendants In Complaint Challenging A Merger
Ligos v. Tsuff, C.A. No. 2020-0435-SG (Del. Ch. Dec. 1, 2022)
The Delaware Supreme Court’s Cornerstone Therapeutics decision established that, although a transaction involving a controller must satisfy entire fairness review, plaintiffs seeking money damages against independent directors protected by an exculpation clause must still state a non-exculpated claim against each such director, or that director will be entitled to dismissal. In other words, to proceed against independent directors, the complaint must adequately plead that they breached the fiduciary duty of loyalty. More ›
Chancery Dismisses Claims Against Controller and its Affiliates Based on Group Pleading and Vague, General Allegations of Claims for Breach of Fiduciary Duty
Bocock v. Innovate Corp., C.A. No. 2021-0224-PAF (Del. Ch. Oct. 28, 2022)
A holding company acquired a controlling stake in an owner/operator of low-power television stations via a stock purchase agreement. The controller then designated certain of its own affiliates’ officers and directors as officers and directors of the acquired company. More than three years later, stockholders and option holders filed a complaint alleging that the controller, its affiliates, and the officers and directors had conspired to loot the company by usurping corporate opportunities, transferring assets for insufficient consideration, and entering into agreements that drained value from the company. The claims included breach of fiduciary duty, corporate waste, aiding and abetting, conspiracy, and tortious interference. More ›
Chancery Holds That Controlling Stockholder Approving Exclusive Forum Selection Clause In Charter Amendment Impliedly Consented To Personal Jurisdiction
In Re Carvana Co. S’holders Litig., C.A. No. 2020-0415-KSJM (Del. Ch. Aug. 31, 2022)
In Delaware, parties may waive the requirement of personal jurisdiction either expressly or impliedly. The Court of Chancery applied this waiver principle in In re Pilgrim’s Corporations Derivative Litigation (2019), finding that a controlling stockholder impliedly consented to personal jurisdiction when his Board appointees approved a bylaw selecting the Court of Chancery as the exclusive jurisdiction for certain stockholder disputes. This decision extends and applies Pilgrim’s ruling to a controlling stockholder who personally voted to approve a charter amendment that granted exclusive jurisdiction in the Court of Chancery. More ›
Chancery Limits Review on Motion to Dismiss to Only Section 220 Documents Cited in Complaint and Dismisses Complaint Under MFW Doctrine
City Pension Fund for Firefighters and Police Officers in the City of Miami, v. The Trade Desk, Inc., et al., C.A. No. 2021-0560-PAF (Del. Ch. July 29, 2022)
This decision addresses certain points of interest concerning (i) the use of books and records produced pursuant to Section 220 of the DGCL in subsequent litigation, and (ii) structuring controlling stockholder transactions to facilitate business judgment review. More ›
Chancery Sustains Fiduciary Duty Claims Arising From Option Grants At Pandemic-Low Price
Knight v. Miller, C.A. No. 2021-0581-SG (Del. Ch. Apr. 27, 2022)
In mid-March 2020, at a time when the COVID-19 pandemic caused the corporation’s stock price to trade at a periodic low, the corporation’s compensation committee awarded stock options to themselves and other directors and officers. Addressing the defendants’ motion to dismiss, the Court reasoned that the circumstances did not support an inference of bad faith. Nevertheless, because the compensation committee members received options and thus were personally interested in determining their terms, such claims were subject to entire fairness review. Similarly, option grants to certain directors who together also were the corporation’s controlling stockholders would be subject to entire fairness review as involving non-ratable benefits to a controller. The Court rejected, however, the stockholder-plaintiffs’ theory that certain officer-defendants breached their fiduciary duty of loyalty by receiving the awards. Surveying prior cases, the Court reasoned that to sustain such a claim, the circumstances would have to be such that the recipient acted with scienter (i.e., in “bad faith”) by receiving the compensation at-issue. Finally, given that the awards potentially resulted from breaches of fiduciary duty by the director-defendants, the Court sustained at the pleading stage a claim that all recipients were unjustly enriched.
Chancery Upholds Claims Against Controller’s Family Member
In re Straight Path Communications Inc. Consol. Stockholder Litig., C.A. No. 2017-0486-SG (Del. Ch. Feb. 17, 2022)
This summary judgment decision arose out of a transaction involving the company Straight Path. Straight Path’s controller had sold company assets to another company controlled by his family, IDT, for an allegedly inadequate price. One of the assets was an indemnification claim against IDT, which used to be Straight Path’s parent company, for indemnification rights arising following Straight Path’s spin-off. Straight Path thereafter was sold to Verizon, eliminating derivative standing for the company’s stockholders to challenge derivatively the asset sale to IDT. Straight Path’s controller allegedly leveraged his control to wrest that indemnification claim from the company’s stockholders prior to the Verizon transaction. Stockholders brought direct claims against the family members and an affiliated trust in this action. Their claims previously survived dismissal, and in this decision their claims survived summary judgment. More ›
Chancery Dismisses All Claims in Stockholder Challenge to Cash-Out Merger Transaction
Harcum v. Lovoi, C.A. No. 2020-0398-PAF (Del. Ch. Jan. 3, 2022)
In Harcum, the Delaware Court of Chancery dismissed all claims brought in a stockholder suit alleging fiduciary breaches in connection with the $1 billion dollar acquisition of Roan Resources Inc. by Citizen Energy Operating, LLC. The Court found that the transaction was “cleansed” pursuant to Corwin v. KKR Financial Holdings LLC, 125 A.3d 304, 312 (Del. 2015), because the plaintiff failed to adequately plead that any alleged controllers were conflicted or that the transaction was not approved by an uncoerced, fully informed stockholder vote. More ›
Chancery Dismisses Derivative Claims That Private Equity Sponsors Comprised A Control Group
Patel v. Duncan, C.A. No. 2020-0418-MTZ (Del. Ch. Sept. 30, 2021)
For stockholders to comprise a control group, the alleged group members must be connected in some “legally significant way – such as by contract, common ownership, agreement or another arrangement – to work together toward a shared goal.” Sheldon v. Pinto Tech. Ventures, L.P., 220 A.3d 245, 251-52 (Del. 2019). There must be “an indication of an actual agreement, although it need not be formal or written.” Id. Here, the court dismissed a claim alleging that two private equity funds comprised a control group that agreed to cause the corporation to engage in two unfair, self-interested transactions as a quid pro quo arrangement between them. Specifically, the plaintiff alleged they agreed to cause the corporation to overpay in two successive transactions in which the counterparties who benefitted unfairly were affiliates of the respective private equity funds. More ›
Chancery Examines Cornerstone Standard for Establishing Non-Exculpated Fiduciary Duty Claims
In Re BGC Partners, Inc. Derivative Litigation, Consol. C.A. No. 2018-0722-LWW (Del. Ch. Sep. 20, 2021)
A director protected by an exculpatory provision is entitled to dismissal in a breach of fiduciary duty action unless the plaintiff advances a non-exculpated claim. Under In re Cornerstone Therapeutics Inc. Shareholder Litigation, 115 A.3d 1173 (Del. 2015), to establish a non-exculpated claim plaintiff must show that a director: (1) “harbored self-interest adverse to the stockholders’ interests”; (2) “acted to advance the self-interest of an interested party from whom they could not be presumed to act independently”; or (3) “acted in bad faith.” This decision explains Cornerstone’s second prong. More ›
Chancery Applies Rule 15(aaa), Declines to Revive Dismissed Claims under the Law of the Case Doctrine
Sciabacucchi v. Malone, C.A. No. 11418-VCG (Del. Ch. Aug. 18, 2021).
Court of Chancery Rule 15(aaa) provides that, if a plaintiff files an answering brief opposing a Rule 12(b)(6) or Rule 23.1 motion, a decision granting the motion is with prejudice unless the court “for good cause shown, shall find that dismissal with prejudice shall not be just under all the circumstances.” In this decision, the court applied that rule and the law of the case doctrine to deny a motion to amend to reassert dismissed claims. More ›
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 Finds No Transaction-Specific Control Where Plaintiffs Failed to Allege that a Majority of the Members of a Special Committee Were Under the Sway of a Would-Be Controller
In re GGP Inc. Stockholder Litig., C.A. No. 2018-0267-JRS (Del. Ch. May 25, 2021).
Under MFW and its progeny, if there is a conflicted controlling stockholder, then in order to receive the benefits of the business judgment rule, the transaction must be negotiated and approved by independent and disinterested directors and conditioned on an informed and uncoerced vote of a majority of the minority stockholders. A stockholder that owns less than 50% of the voting power of the corporation may be a controller if it exercises control over the business affairs of the corporation either generally or with respect to the transaction at-issue. More ›
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