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Chancery Finds that Acquiror Aided and Abetted Breaches of Fiduciary Duties by Exploiting Management’s Conflicts of Interest

In re Columbia Pipeline Group Merger Litig., Consol. C.A. No. 2018-0484-JTL (Del. Ch. June 30, 2023)
To establish a claim for aiding and abetting a breach of fiduciary duties, a plaintiff must show “i) the existence of a fiduciary relationship giving rise to a duty to the plaintiff, (ii) a breach of that duty by the fiduciary, (iii) knowing participation in the breach by the defendant, and (iv) damages proximately caused by the breach.” Id. at 94. The plaintiffs alleged that TransCanada, the acquirer in the merger transaction, aided and abetted a breach of fiduciary duties in the merger sale process and in disclosures to the stockholders in connection with the merger vote.

In this post-trial decision, the Court held that the defendant TransCanada aided and abetted the CEO’s and CFO’s breaches of their fiduciary duty of loyalty in the sale process because it had knowingly participated in the breaches. The Court reasoned that TransCanada had reason to know that the CEO and CFO were pursuing their own interests – specifically in obtaining lucrative change-in-control payments and retiring – and that the Board was not providing sufficient oversight. The Court explained that TransCanada had aided and abetted these breaches because it took actions over the course of several months that induced errors by the breaching fiduciaries. Among other things, TransCanada reneged on an agreement for a sale at $26 per share, and instead dropped the price of the sale to $25.50, by making a coercive threat in violation of a standstill agreement between the parties. The Court also held that TransCanada aided and abetted a breach of fiduciary duties by the directors, CEO, and CFO for failing to disclose all material information in connection with the stockholders’ merger vote. The Court found that TransCanada aided and abetted this breach because they were aware of information that was not included in the proxy statement, including information concerning negotiations with the CEO and CFO, and failed to take any action to attempt to correct these disclosures, despite having an obligation under the merger agreement to correct material omissions. The Court awarded damages in the amount of $1 per share for the sale process claims, an amount based on the per share price that reasonably could have been achieved absent the breaches.

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