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Showing 39 posts in Controlling Stockholder.

Chancery Applies Rule 15(aaa), Declines to Revive Dismissed Claims under the Law of the Case Doctrine

Posted In Chancery, Controlling Stockholder, Rules of Procedure


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 ›

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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

Posted In Boards of Directors, Chancery, Controlling Stockholder, Fiduciary Duty, M&A


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 ›

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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

Posted In Chancery, Controlling Stockholder, Special Committees


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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Chancery Sustains Claims Against Target’s CEO, Target’s Financial Advisor, and Acquirer for Allegedly Covertly Steering Merger Bidding Process

Posted In Chancery, Controlling Stockholder, Fiduciary Duty, M&A

Firefighters’ Pension System of The City of Kansas City, Missouri Trust v. Presidio, Inc., C.A. No. 2019-0839-JTL (Del. Ch. Jan. 29, 2021)

Presidio illustrates potential pitfalls for parties in the M&A process, including executives managing personal interests in potential post-transaction employment while negotiating a deal, financial advisors with future business interests in mind while controlling competitive offer information, and acquirers potentially aware of a bidding process being steered in their direction. More ›

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Chancery Addresses Standing Defense And Control Allegations In Abandoned Tender Offer Dispute

Posted In Chancery, Controlling Stockholder, Standing

In re WeWork Litig., C.A. No. 2020-0258-AGB (Del. Ch. Dec. 14, 2020)

This decision is the companion to another dismissal opinion in same case of the same date and arising out of the same abandoned multi-step tender offer transaction between WeCompany (“WeWork” or the “Company”) and SoftBank Group Corp. and Vision Fund (AIV M1) L.P. (together, “Softbank”). A summary of the companion opinion is available hereMore ›

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Chancery Sustains Complaint for Breach of Fiduciary Duty against Viacom Controllers

Posted In Chancery, Controlling Stockholder, Fiduciary Duty, M&A

In re Viacom Inc. Stockholders Litig., C.A. No. 2019-0948-JRS (Del. Ch. Dec. 29, 2020), as corrected (Dec. 30, 2020)

This case exemplifies that the Court of Chancery will review a transaction under the entire fairness standard where a controller receives a non-ratable benefit and the controller fails to condition the transaction on the approval of a special committee and of a majority of the disinterested minority stockholders. Plaintiffs, minority stockholders of Viacom International (“Viacom”), sued Shari Redstone, her corporate entities (together with Ms. Redstone, the “Controllers”), and Viacom directors that were allegedly loyal to Ms. Redstone. Ms. Redstone indirectly controls both Viacom and CBS Corporation (“CBS”). Among other things, the plaintiffs contended that the Controllers breached their fiduciary duties in causing the merger between Viacom and CBS on terms beneficial to the Controllers but detrimental to Viacom’s public stockholders.   More ›

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Chancery Upholds Class Claims Alleging Breaches of Fiduciary Duty in Alleged Controlling Stockholder’s Tender Offer

Posted In Chancery, Class Actions, Controlling Stockholder, Fiduciary Duty

In re Coty Inc. Stockholder Litigation, C.A. No. 2019-0336-AGB (Del. Ch. Aug. 17, 2020)  

JAB Holding Company S.à.r.l. and its affiliates (together “JAB”) completed a partial tender offer (the “Tender Offer”) for shares of Coty Inc. (“Coty”) on April 25, 2019, increasing its ownership stake from 40% to 60% of the outstanding Coty shares. At the time of the Tender Offer, Coty had a nine-member board of directors – four directors affiliated with JAB (the “JAB Directors”) and five individual directors (the “Individual Directors”). Pierre Laubies, the CEO of Coty, was one of the Individual Directors. Although Laubies was the only Individual Director with a management position at Coty, he, like all of the Individual Directors, had professional ties to JAB and its officers, with Laubies having formerly served as CEO of a JAB affiliate.  More ›

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Entire Fairness Standard Applies Where Controller Has Substantive Discussions with Minority Stockholders before Agreeing to MFW Protections

Posted In Chancery, Controlling Stockholder, Fiduciary Duty, M&A

In re HomeFed Corporation Stockholder Litigation, C.A. 2019-0592-AGB (Del. Ch. July 13, 2020)
This case illustrates that the Court of Chancery will apply the entire fairness standard to review a squeeze-out merger by a controller, if the controller engages in substantive economic discussions before the company has enacted the procedural protections outlined in Kahn v. M & F Worldwide Corp, 88 A.3d 635 (Del. 2014) (“MFW”) that would permit business judgment review. In this case, Jefferies Financial Group Inc. (“Jefferies” or the “Controller”), which owned 70% of HomeFed Corporation (“HomeFed”), acquired the remaining shares of HomeFed in a share exchange in which each HomeFed minority shareholder received two Jefferies shares in exchange for one of its HomeFed shares (the “Transaction”). A HomeFed director originally proposed the 2:1 share exchange to Jefferies in September 2017, and Jefferies subsequently discussed the share exchange with HomeFed’s second largest shareholder Beck, Mack and Oliver, LLC (“BMO”). In December 2017, HomeFed’s board of directors (the “Board”) formed a special committee (the “Special Committee”) that had the exclusive power to evaluate and negotiate a potential transaction. When the parties were unable to agree to merger terms, the Special Committee “paused” its process in March 2018. Despite pausing the Special Committee, Jefferies continued to discuss a potential transaction with BMO for the next year.  More ›

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Chancery Dismisses Claims that Minority Stockholders who Rolled Over Equity in a Controlling Stockholder Merger Joined a “Control Group”

Posted In Controlling Stockholder, Fiduciary Duty, M&A

Gilbert v. Perlman, C.A. No. 2018-0453-SG (Del. Ch. Apr. 29, 2020)

Delaware law imposes fiduciary duties upon controlling stockholders who use their power to control the corporate machinery. For that reason, determining who comprises a control group affects who may owe fiduciary duties. In some circumstances, where minority stockholders pool their interests to gain majority control and then bind themselves to act together to effectuate a transaction, minority stockholders may take on the duties of a controlling stockholder as members of a control group. But where an already existing controlling stockholder effectuates a cash-out merger, minority stockholders who roll over their shares and enter into a voting agreement to support the transaction will not be deemed part of a control group unless a plaintiff can plead that “the minority-holder’s participation [was] material to the controller’s scheme to exercise control of the entity, leading to the controller ceding some of its control power to the minority-holders.” More ›

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Chemours v. DowDuPont: Chancery Requires Subsidiary to Arbitrate Separation Agreement Dispute with Parent Despite the Subsidiary’s Lack of “Real World” Consent to the Separation Agreement

Posted In Arbitration, Controlling Stockholder

The Chemours Co. v. DowDuPont Inc., et al., C.A. No. 2019-0351-SG (Del. Ch. Mar. 30, 2020).

The subsidiary-plaintiff, created after the reorganization of the parent-defendant, brought an action against its parent and related entities challenging the enforceability of the Separation Agreement memorializing the terms of the subsidiary’s spin-off, including its arbitration clause. According to the subsidiary, certain liabilities assigned to the subsidiary in the spin-off were “vastly and wrongfully underestimated” by the parent, and the subsidiary brought suit to limit its obligations for those liabilities. The defendants moved to dismiss for lack of subject matter jurisdiction because the Separation Agreement contained an arbitration clause.        More ›

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Surveying the Law, Chancery Declines to Dismiss a Claim that a 35% Holder was the Controlling Stockholder of the Acquirer (as Well as the Target)

Posted In Controlling Stockholder, Fiduciary Duty, M&A

Voigt v Metcalf, C.A. No. 2018-0828-JTL (Del. Ch. Feb. 10, 2020).

This decision contains an instructive review of the factors the Court of Chancery will examine to determine whether a minority stockholder may in fact be a controlling stockholder in the circumstances of a specific transaction – an area of the law that has assumed increased importance after Corwin. More ›

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Chancery Allows Fiduciary Duty Claims to Proceed against Minority Members Who Blocked Financings in Order to Bankrupt Company and Facilitate Unfair Asset Purchase

Posted In Controlling Stockholder, Fiduciary Duty, LLC Agreements

Skye Mineral Investors, LLC v. DXS Capital (U.S.) Ltd., C.A. No. 2018-0059-JRS (Del. Ch. Feb. 24, 2020) (Slights, V.C.).

Where parties to an LLC agreement do not unambiguously disclaim fiduciary duties, then Delaware law provides by default that managers owe traditional fiduciary duties to the entity and its members. The corporate law principles relating to fiduciary duties of controlling shareholders also apply, including that a minority member who exercises actual control may owe fiduciary duties. In this decision, the Court held that plaintiffs, the majority members of an LLC, adequately alleged that minority members exercised contractual blocking rights in a manner that gave them actual control over financing decisions and then used that control to implement in bad faith a scheme to enable the minority members to acquire the LLC’s assets on the cheap. With those allegations, the Court sustained a non-exculpated claim against the minority members for direct and derivative contract- and fiduciary-based claims. More ›

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Chancery Denies Motions for Summary Judgment in Tesla Litigation, Questions Remain as to Whether Musk is a Controlling Stockholder

Posted In Controlling Stockholder, Fiduciary Duty

In re Tesla Motors, Inc. S’holder Litig., C.A. No. 12711-VCS (Del. Ch. Feb. 4, 2020).

The Delaware Court of Chancery denied plaintiffs’ and defendants’ (including Elon Musk’s) motions for summary judgment on the grounds that genuine issues of material fact still remain to be determined at trial. The plaintiffs brought the action based on the allegation that Musk improperly influenced the Tesla board of directors to approve Tesla’s acquisition of SolarCity, another entity owned partially by Musk that was purportedly on the verge of insolvency.  More ›

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Chancery Rejects Challenge to Financing Made Open to All Investors, Reasons the LLC Operating Agreement Allows Self-Interested Conduct, so any Claims Must Assert Bad Faith

Posted In Controlling Stockholder, Fiduciary Duty, LLC Agreements

MKE Holdings Ltd. v. Schwartz, C.A. No. 2018-0729-SG (Del. Ch. Jan. 29, 2020).

Verdesian Life Sciences, LLC is an agricultural company focused upon rolling up various companies with proprietary plant health technologies. All members of the Board of Managers of Verdesian were appointed by Paine Schwartz Partners, LLC (“Paine”), a private equity firm that owned over seventy percent of the Class A Units of the company. Paine also benefited from a management agreement that entitled it to receive certain management fees tied to acquisitions. The LLC Operating Agreement required the Managers to perform their duties in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of Verdesian. However, the Operating Agreement also allowed Managers and Members to “consider only such interests and factors as such Manager or Member desires, including its, his or her own interests” when facing discretionary decisions. The Court of Chancery concluded that the Operating Agreement “directs the Managers to operate in good faith and with ordinary care and effectively exculpates Managers for conflicted, negligent and other detrimental decisions … so long as taken in good faith.” More ›

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Chancery Declines to Apply Corwin Where a Stockholder-Plaintiff Adequately Alleged the Existence of a “Control Group”

Posted In Controlling Stockholder, Fiduciary Duty

Garfield v. BlackRock Mortgage Ventures, LLC, C.A. No. 2018-0917-KSJM (Del. Ch. Dec. 20, 2019).

Under Delaware law, when a controlling stockholder benefits personally from the transaction in a manner not shared by minority stockholders, a stockholder vote does not trigger Corwin and restore the protections of the business judgment rule. This decision considers whether a stockholder-plaintiff sufficiently alleged a “control group” to avoid Corwin deference. More ›

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