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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. 

The plaintiff first argued that Corwin did not apply because the transaction involved a conflicted controller thereby subjecting the transaction to entire fairness review ab initio. The Court rejected this argument, noting that while the plaintiff adequately pled that at least one of the defendants was a “controller,” she had not demonstrated that any alleged controller was either on both sides of the transaction or received a non-ratable benefit. The plaintiff then argued that even if the transaction did not involve a conflicted controller, due to deficiencies in the proxy, the shareholder vote was not fully informed, rendering Corwin cleansing inappropriate. Specifically, the plaintiff argued that the proxy failed to disclose certain relationships and connections between the leadership of Roan and Citizen Energy as well as other facts that allegedly demonstrated that the board, the special committee, and certain advisors might be conflicted. The Court rejected this argument, finding that the facts relating to the various “relationships” and connections among and between certain individuals at Roan and Citizen Energy and/or their advisors were based solely on conclusory allegations without supporting well-plead factual allegations, or otherwise were not material. Thus, the Court dismissed the plaintiff’s claims pursuant to Corwin finding that the transaction was not conflicted and was approved by an uncoerced, fully informed vote of the stockholders.



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