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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.

Here, in litigation challenging a squeeze-out transaction with the company’s controller, the plaintiff filed an amended complaint adding allegations that, at the time of the merger, there was an inchoate claim of breach of fiduciary duties against the board and controller based on the controller’s alleged pre-merger looting of the company in connection with a management agreement. In rejecting defendants’ motion to dismiss, the Court of Chancery ruled that the new allegations did not state a derivative claim acquired by a third-party buyer, a la Primedia. Rather, the allegations were supportive of plaintiff’s direct claims against the controller and the director defendants challenging the conflicted merger’s fairness as a matter of price and process. They therefore did not implicate Primedia.

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