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Showing 243 posts in M&A.

Court Rejects Franchisor’s Attempt Based on Business Effects of COVID-19 to Escape Contractual Obligation to Purchase Franchisee’s Assets


Level 4 Yoga, LLC v. CorePower Yoga, LLC, C.A. No. 2020-0249-JRS (Del. Ch. March 1, 2022)
In this post-trial decision, the Court of Chancery awarded specific performance to Plaintiff/franchisee who sought to enforce Defendant/franchisor’s exercise of its contractual right to purchase Plaintiff’s assets, which included yoga studios in several states.  Defendant exercised its right as of May 2019 but then delayed, and ultimately purported to back out, after the COVID-19 pandemic took hold in early 2020.  The Court granted specific performance based upon the specific language of the parties’ agreement, finding Defendant failed to prove either a Material Adverse Effect or a violation of the ordinary course covenant when Plaintiff temporarily closed its yoga studios in response to COVID-19.  Among other reasons, the seller was the franchisee, the buyer was the franchisor, and the seller had followed the buyer’s instructions concerning the operation of franchises.  The Court also noted that the parties’ agreement contained no closing conditions or an express right to terminate.

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Court of Chancery Holds That Exclusive Remedy Provisions Alone Are Not Enough To Bar Fraud Claims Based On Extra-Contractual Statements


Fortis Advisors LLC v. Johnson & Johnson, C.A. No. 2020-0881-LLW(Del. Ch. Dec. 13, 2021)
Delaware public policy respects freedom of contract, but
it is also intolerant of fraud. These dueling policy aims are often pitted against one another in the context of complex commercial transactions, where the contracting parties agree to allocate risk – including limitations on the information relied on in entering the transaction. Delaware courts have struck a balance: contractual disclaimers of reliance are permitted, but they must be express and limited to the other party’s extra-contractual statements. Here, the Court of Chancery considered whether an exclusive remedies provision was alone sufficient to disclaim reliance on extra-contractual statements. More ›

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Chancery Revived a Dismissed Claim after Discovery Revealed a Desire for Liquidity that Resulted in a Divergent Interest in M&A Sale Process

Posted In Chancery, Fiduciary Duty, M&A


In re Mindbody, Inc., S’holder Litig., Cons. C.A. No. 2019-0442-KSJM (Del. Ch. Dec. 9, 2021)
A desire for liquidity can result in a divergent interest sufficient to plead fiduciary duty claims against a defendant protected by an exculpatory charter provision. More ›

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Delaware Supreme Court Affirms that Seller’s Change of Business Operations in Response to the COVID-19 Pandemic Excused Buyer’s Obligation to Close


AB Stable VIII LLC v. Maps Hotels and Resorts One LLC, No. 71-2021 (Del. Dec. 8, 2021)
This Supreme Court decision affirms the Court of Chancery’s decision below (reported here) that a buyer’s obligation to purchase a $5.8 billion group of hotel properties was excused due to the seller’s failure to comply with a covenant that, between signing and closing, it would operate “only in the ordinary course of business, consistent with past practice in all material respects.”  More ›

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Chancery Applies Plain Language of a Merger Covenant To Dismiss Acquirer’s Untimely Indemnification Claim and Deny Sellers’ Request for Detailed Annual Reports


Supernus Pharms., Inc. v. Reich Consulting Grp., Inc., C.A. No. 2020-0217-MTZ (Del. Ch. Oct. 29, 2021)
Supernus Pharmaceuticals, Inc. acquired biotech startup Biscayne Neurotherapeutics, Inc. pursuant to a 2018 merger agreement. In 2019, Supernus submitted indemnification claim notices to Reich Consulting Group, Inc., the security holder representative for Biscayne. Subsequently, Supernus filed an indemnification action against Reich in the Court of Chancery. Following trial, plaintiff Supernus’s only remaining indemnification claim was based on a provision in the merger agreement that required Biscayne to operate in the ordinary course of business during a specific period of time (“Ordinary Course Covenant”). More ›

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Delaware Supreme Court Upholds Contractual Waiver of Statutory Appraisal Rights


Manti Holdings, LLC, et al. v. Authentix Acquisition Co., Inc., No. 354, 2020 (Del. Sept. 13, 2021)
This decision arose out of the acquisition of Authentix Acquisition Company, Inc. and a subsequent appraisal proceeding brought by dissenting stockholders under 8 Del. C. § 262. As a condition of an earlier merger involving the private equity firm Carlyle, the petitioners were parties to a stockholders agreement binding the corporation and all of its stockholders that purported to waive the stockholders’ statutory appraisal rights. At the trial court level, the Court of Chancery enforced the contractual waiver and granted the company’s motion to dismiss. On appeal, alongside other contentions, the petitioners argued that statutory appraisal rights are one of the fundamental features of corporate identity and should be found nonwaivable under Delaware law and public policy. More ›

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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 ›

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Chancery Addresses When an Efforts Clause-Based Earnout Claim May Ripen

Posted In Chancery, Earn-Out, M&A


S’holder Representative Servs., LLC v. Alexion Pharm., Inc., C.A. No. 2020-1069-MTZ (Del. Ch. Sep. 1, 2021)
Mergers and sale agreements frequently include earn-out provisions that entitle one party to future compensation if certain business or financial goals are met within a defined period. In return, the other party often must use a defined level of effort—such as “commercially reasonable” efforts—to achieve the goals that trigger the earn-out. This case addresses a practical threshold question: If the party entitled to the earn-out believes that the other party has breached its duty to use commercially reasonable efforts, may that party sue immediately, or must that party wait until the earn-out period ends? More ›

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Chancery Rejects MFW Defense Based on Failure to Disclose That a Conflicted Controller Participated in Arbitration Proceedings Potentially Impacting the Company’s Value


Ligos v. Isramco, Inc., C.A. No. 2020-0435-SG (Del. Ch. Aug. 31, 2021)
Under MFW, a conflicted controller transaction may get the benefit of business judgment review when conditioned on two procedural protections involving: (i) approval by an independent special committee; and (ii) approval by a fully informed, uncoerced majority of the minority stockholders. At issue in Ligos was whether the shareholders were fully informed regarding the value of an arbitration concerning certain royalties when they approved a merger. More ›

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Chancery Enforces Parties’ Merger Agreement That Barred Claims Upon Termination of the Agreement


Yatra Online, Inc. v. Ebix, Inc., C.A. No. 2020-0444-JRS (Del. Ch. Aug. 30, 2021)

Agreements frequently specify how the termination of the agreement affects the parties’ rights and obligations. This case illustrates that Delaware courts generally enforce “effect of termination” provisions in merger agreements as readily as any other contract provision. More ›

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Chancery Denies Motion to Dismiss in Part Because Certain Discussions Between CEO and Acquirer Were not Disclosed in Proxy When Other Similar Communications Were


Teamsters Local 237 Additional Security Benefit Fund v. Caruso, C.A. No. 2020-0620-PAF (Del. Ch. Aug. 31, 2021)
Under Revlon, a director must focus on obtaining a transaction that provides the maximum value for stockholders in a sale of control. In addition, when directors solicit stockholder approval, they must disclose fairly and fully all material information. More ›

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Chancery Rejects Inadequate Disclosure Contentions and Grants Corwin Dismissal


Kihm v. Mott, C.A. No. 2020-0938-MTZ (Del. Ch. Aug. 31, 2021)

Under the Corwin doctrine, a fully informed and uncoerced approval of a board decision by the corporation’s disinterested stockholders can downgrade an otherwise heightened standard of review to deferential business judgment review and result in prompt dismissal of post-closing M&A litigation not involving a conflicted controlling stockholder. Kihm involved a merger breach of fiduciary duty challenge and an attempt to avoid Corwin cleansing based on alleged deficient disclosures in the target board’s recommendation statement to the stockholders. More ›

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Chancery Sustains Founders’ Implied Covenant Claim For “Bad Faith” Termination To Deprive Them Of Contingent Compensation, Reasoning That Contracts Cannot Be Combined And Must Be Read On Their Own Terms, But The Implied Covenant May Provide Missing Terms


Servaas v. Ford Smart Mobility LLC, C.A. No. 2020-0909-LWW (Del. Ch. Aug. 25, 2021)
Delaware common law requires that contracts be read on their own terms.  Accordingly, contracts cannot be “combined” to supply missing terms.  However, the implied covenant and good faith and fair dealing can, in certain circumstances, supply these missing terms.  More ›

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Superior Court’s Complex Commercial Litigation Division Reaffirms Delaware’s Public Policy Against Intra-Contractual Fraud

Posted In CCLD, Fraud, M&A, Superior Court


Aveanna Healthcare, LLC v. Epic/Freedom LLC, N20C-08-055 AML CCLD (July 29, 2021).
Under Delaware law, parties may agree contractually to disclaim reliance – and potential liability for fraud – based on false extra-contractual statements. Delaware public policy, however, does not allow a party to disclaim liability for fraudulent statements within the parties’ contract. In addition, an owner who knowingly causes a company to make misrepresentations may be personally liable for fraud, even though an agreement provides such representations are made by “the company.” More ›

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Chancery Finds That the Standard of Review for the Conduct of a Shareholders’ Representative Turns Upon the Merger Agreement’s Language

Posted In Chancery, M&A


Houseman v. Sagerman, C.A. No. 8897-VCG (Del. Ch. July 20, 2021)

A merger agreement between a subsidiary of Healthport Technologies, LLC and Universata, Inc., gave the owners of 72 percent of Universata’s stock (the “Owners”) the power to appoint a Shareholders’ Representative. Among other responsibilities, the Shareholders’ Representative was charged with “disbursing among the Shareholders the cash portion of the Purchase Price and any other payments paid to Shareholders under this Agreement.”  More ›

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