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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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- February 19, 2021
- October 30, 2020
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Showing 267 posts in M&A.
Chancery Finds that Buyer Breached Purchase Agreement by Denying Sellers’ Rights to Participate in a Defense
LPPAS Representative, LLC v. ATH Holding Co. LLC, C.A. 2020-0241-KSJM / Shareholder Representative Services LLC v. ATH Holding Co. LLC, C.A. No. 2020-0443-KSJM (Del. Ch. May 2, 2023)
Delaware law recognizes parties’ ability to create a contractual right for an indemnifying party to participate in the defense of a claim. In this case, the Purchase Agreement provided the Sellers with such Participation Rights in connection with third-party claims that may give rise to Sellers’ indemnification obligations. The Court determined that the Buyer breached the Purchase Agreement by not allowing the Sellers to participate in the defense of investigations. More ›
Chancery Denies Sellers’ Claim Against Buyers for Failure to Close, Finds That Sellers’ Award of “Phantom Equity” to Former Employee Breached Merger Agreement Representations
HControl Holdings LLC vs. Antin Infrastructure Partners S.A.S., C.A. 2023-0283-KSJM (Del. Ch. May 29, 2023)
In Delaware, buyers bear the burden of proving by a preponderance of the evidence their claims for breach of a merger agreement, and sellers bear the burden of proving that buyers could not exercise their termination rights because buyers were in breach of their own obligations. In this case, the Court finds for the Buyers and determines that they were entitled to terminate the deal because the Sellers breached representations in the Merger Agreement. More ›
Following Flawed Business Acquisition, Chancery Dismisses Derivative Complaint for Failure to Plead Demand Futility
City of Coral Springs Police Officers' Pension Plan v. Dorsey, C.A. No. 2022-0091-KSJM (Del. Ch. May 9, 2023)
A terrible business decision does not ensure the Court of Chancery will sustain a derivative claim. A derivative plaintiff still must allege that a board of directors wrongfully refused a stockholder's demand to bring suit or that making a demand on the board would be futile because a majority of the board either was interested in the transaction or would face a substantial likelihood of liability for approving the transaction, or was dependent on someone who was interested or faced a substantial likelihood of liability. More ›
Entire Fairness Standard Applied to Transaction Benefitting Controllers of Controllers
Tueza v. Lindon, C.A. No. 2022-0130-SG (Del. Ch. Apr. 27, 2023)
Because controlling stockholders of Delaware corporations owe fiduciary duties to both the corporation and to its minority stockholders, the Court of Chancery will subject a transaction involving the company to entire fairness review if a controller receives a non-ratable benefit from a transaction. This case confronts a more nuanced question: Does entire fairness apply if the non-ratable benefit goes not to the controller but to a separate entity controlled by the controller's controllers? More ›
Chancery Court Again Applies Entire Fairness to Claims Challenging SPAC Transaction
Laidlaw v. GigAcquisitions2, LLC, C.A. No. 2021-0821-LWW (Del. Ch. Mar. 1, 2023)
In the aftermath of a SPAC merger, the plaintiff (a public stockholder) brought claims for breaches of fiduciary duty against the SPAC's board and sponsor, as controllers, for issuing an allegedly false and misleading proxy statement. According to the plaintiff, the proxy statement failed to disclose the net cash per share that the SPAC would contribute to the merger, which in turn misrepresented the anticipated value of post-merger shares, and that such information was material to the decisions of public stockholders whether to invest in the post-merger company or to redeem their SPAC investments. Plaintiff alleged that the sponsor and board were incentivized to minimize redemptions in order to secure returns for the sponsor, which purchased a 20% stake in the post-merger company at a nominal price. More ›
Chancery Finds for Defendants in Challenge to Oracle Acquisition of NetSuite
In re Oracle Corporation Derivative Litigation, Consol. C.A. No. 2017-0337-SG (Del. Ch. May 12, 2023)
In this “vigorously litigated” matter, the Plaintiffs argued that Oracle’s founder and current officer and director, Larry Ellison, manipulated a special committee of Oracle’s board to overpay for NetSuite, another company in which Ellison was a substantial investor. Plaintiffs offered two theories to bring the transaction within the entire fairness standard of review: first, that Ellison was a controller who sat on both sides of the transaction, and second, that Ellison, on his own and with Oracle CEO Safra Catz, misled the Oracle board and special committee, and thus the transaction was a product of fraud. Post-trial, the Court of Chancery rejected both theories, applied the business judgment rule, and found for the defendants. More ›
Director violated Revlon Duties by Tilting the Sales Process in favor of the Buyer
In re Mindbody Inc. Stockholder Litig., C.A. No. 2019-0442-KSJM (Del. Ch. Mar. 15, 2023)
Under Revlon, to demonstrate that they satisfied their fiduciary duties in connection with a sale of control, directors bear the burden of establishing both the reasonableness of their decision-making process and the reasonableness of their actions in light of the circumstances then present. As the Court reasoned in a prior opinion in this action (discussed here), "[t]he paradigmatic Revlon claim involves a conflicted fiduciary who is insufficiently checked by the board and who tilts the sale process toward his own personal interests in ways inconsistent with maximizing stockholder value." More ›
Chancery Holds Stockholders Can Assert Disclosure Claims on Behalf of Other Stockholders but Must Do So Through a Derivative Action
New Enterprise Associates 14, L.P. vs. Rich, C.A. No. 2022-0406-JTL (Del. Ch. March 9, 2023)
Delaware law establishes that directors owe a duty of disclosure which arises as "the application in a specific context of the board's fiduciary duties…." In this case, stockholders asserted various claims against the board, including an allegation that the company's directors breached a duty of disclosure to other stockholders, which injured the plaintiffs when those stockholders were misled into approving a dilutive stock offering. This decision finds that the stockholder-plaintiffs can assert such a cause of action but that the resulting claim is derivative. More ›
Chancery Examines Director’s Personal Ties and Dismisses Duty of Loyalty Claim
In re Orbit/FR, Inc. S’holders Litig., C.A. No. 2018-0340-SG (Jan. 24, 2023)
This decision involved a stockholder challenge to a merger between Orbit and its controller, Microwave Vision. A certain director who served on a special committee was alleged to have breached his fiduciary duty of loyalty in approving the transaction, arising out of his alleged conflict as an employee beholden to the controller for his job. After admitting the allegation of an employment relationship was a mistake, the plaintiff shifted to alleging the director lacked independence based on his personal relationship with another director, who served on the boards of both Orbit and Microwave Vision. The two directors had been neighbors, their children were contemporaries, and they frequently went bicycling together years earlier. On a motion to dismiss, the Court of Chancery found that these "casual sharing of interests between neighbors” did not give rise to a conflict for the at-issue director and did not support a non-exculpated duty of loyalty claim against him.
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 ›
Chancery Upholds Claims Post-Merger
Harris v. Harris, C.A. No. 2019-0736-JTL (Del. Ch. Jan. 6, 2023)
Delaware law allows for two exceptions to the continuous stock ownership rule for stockholders to bring and maintain standing to assert derivative claims that predate a transaction: (1) when the transaction, which would otherwise deprive the plaintiffs of standing, is essentially a reorganization that does not affect the plaintiff’s relative ownership in the post-merger enterprise; or (2) when a plaintiff stockholder loses standing based on a merger consummated for the purpose of depriving the stockholder of the ability to bring or maintain a derivative action. Stockholders with derivative claims that predate a transaction also may assert direct claims to challenge a merger by pleading that the value of the derivative claim is material in the context of the merger, that the acquirer did not assign value or provide additional consideration for the value of the derivative claim, and that the acquirer will not assert the derivative claim. 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 Trims Contract Claims in Post-Merger Dispute
In Re P3 Health Group Holdings, LLC, Consol. C.A. 2021-0518-JTL (Del. Ch. Oct. 31, 2022)
Plaintiff Hudson Vegas Investment SPV, LLC asserted various claims after its minority interest in Defendant P3 Health Group Holdings, LLC was wiped out in a business combination between P3 and a SPAC. The Court of Chancery has issued several decisions in the case; this one dealt with Hudson’s various claims for breach of P3’s LLC agreement. More ›
Chancery Sustains M&A Fraud Claims Based On Near-Term EBITDA Projections
In re P3 Health Grp. Hldgs., LLC, C.A. No. 2021-0518-JTL (Del. Ch. Oct. 26, 2022)
This recent decision addresses three points of interest relevant to fraud claims.
First, while fraud claims generally involve statements of fact, future projections can support a fraud claim. The statement of future projection must be sufficiently specific, and the plaintiff must plead that the projection was fraudulently conceived. In this case, the Court of Chancery found plaintiff had sufficiently pleaded a fraud claim based on a specific EBITDA projection figure for the current year in which the statement was made. According to the plaintiff, the company missed the projected EBITDA number by roughly $52 million, with a projected EBITDA of $12.7 million and actual year-end results of negative $40 million. Because it was a near-term projection, and one reasonably conceivable inference from the large difference was that the defendant knowingly made a false representation, the Court found the plaintiff sufficiently pleaded a fraud claim based on the EBITDA projection. More ›
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