In 2015, Section 115 of the Delaware General Corporation Law (“DGCL”) was added to clarify that Delaware corporations may adopt bylaws requiring that any litigation regarding internal corporate claims be filed in Delaware (commonly referred to as “forum-selection bylaws”).  At the same time, Section 109(b) of the DGCL was amended to make clear that Delaware corporations (other than non-stock corporations) may not adopt bylaws that would shift litigation expenses onto unsuccessful stockholder-plaintiffs in internal corporate litigation (commonly referred to as “fee-shifting bylaws”).  These simultaneous amendments left open the question of whether a limited fee-shifting bylaw, which would only be triggered if the stockholder filed an internal corporate claim outside of Delaware in violation of the corporation’s forum-selection bylaw, would be valid under Delaware law.
Continue Reading Chancery Court Invalidates Bylaw Purporting to Shift Litigation Expenses onto Stockholders Who Violate a Valid Forum-Selection Bylaw

A recent opinion from the Delaware Court of Chancery reaffirmed the importance of bringing disclosure claims before closing (when steps can still be taken to achieve an informed stockholder vote), and the difficult hurdles faced by a plaintiff pursuing disclosure claims after closing.
Continue Reading Delaware Court of Chancery Reaffirms That Disclosure Claims Should Be Brought Before Closing

As discussed in prior posts, recent applications of the Delaware Supreme Court’s decision in Corwin v. KKR Financial Holdings, 125 A.3d 304 (Del. 2015) have emphasized the high bar for surviving a motion to dismiss in damages actions by stockholder plaintiffs after completion of a merger transaction, as “dismissal is typically the result” where informed, disinterested stockholder approval requires application of the business judgment rule to extinguish all claims except for waste.  See Singh v. Attenborough, 137 A.3d 151, 152 (Del. 2016).  Two recent Chancery Court decisions have further underscored the claim-extinguishing effect of informed, disinterested stockholder approval.
Continue Reading Recent Applications of Corwin v. KKR Financial Holdings LLC Confirm High Bar to Pleading Post-Closing Damages Actions

Since our last blog post on the changing landscape of disclosure-only settlements in the Delaware Court of Chancery, there have been developments in several areas, including the continued lower filing rates for shareholder litigation in Delaware, the adoption of the Trulia “plainly material” standard for supplemental disclosures by the Seventh Circuit, and the lower standard for disclosures required in order for plaintiffs’ lawyers to be awarded a fee in the mootness context. 
Continue Reading Update About Disclosure-Only Settlements in M&A Litigation

Two months ago, in Singh v. Attenborough, the Delaware Supreme Court clarified the defendant-favorable standards for determining liability of directors and their advisors following change in control transactions, where such transactions are approved by a vote of a majority of disinterested, uncoerced, and informed stockholders of the target company.  Last week, the Delaware Court of Chancery in In re Volcano Corporation Stockholder Litigation[1] extended that protection to transactions “approved” by fully informed, uncoerced stockholders tendering a majority of shares in a two-step merger pursuant to Section 251(h).  The Chancery Court rejected the plaintiffs’ argument that the Recommendation Statement inadequately disclosed the financial advisors’ alleged conflict of interest and applied the irrebuttable business judgment rule standard, extinguishing all claims against the directors for breach of fiduciary duty and all claims against the target’s financial advisor for aiding and abetting that breach.  Given this claim extinguishment and in the absence of any claims of waste the Court dismissed the complaint.
Continue Reading Irrebuttable Business Judgment Rule Applied to 251(h) Tender Offer

The Delaware Supreme Court recently addressed the issue of whether “holder claims” – claims brought by investors seeking damages based on continuing to hold stock in reliance on a company’s alleged misstatements, rather than buying or selling – are direct or derivative in nature.  In Citigroup Inc., et al. v. AHW Investment Partnership, et al., No. 641, 2015, 2016 WL 2994902 (Del. May 24, 2016), the Court held that “the holder claims are not derivative because they are personal to the stockholder and do not belong to the corporation itself.”
Continue Reading On Certified Question, Delaware Supreme Court Finds “Holder Claims” Are Direct and Tooley Does Not Apply

On May 6, the Delaware Supreme Court issued an Order that sets forth concisely the contours of the defendant-favorable standards for determining liability of directors and their advisors following the closing of sales of control of companies.  These standards are available, however, only following an uncoerced and informed approval of the sale by the target stockholders, including a majority of the disinterested holders.  Thus, while the Order clarifies a roadmap (set forth recently in Corwin v. KKR and discussed here) for obtaining easy dismissal of post-merger damages claims against directors and advisors, the need for directors and their advisors to avoid, or at least ferret out and disclose, any deficiencies in sales processes remains as strong as ever.  Only if these deficiencies are avoided or uncovered and disclosed in advance of the shareholder approval will the lower courts be able to rely on these defendant-favorable standards to dismiss claims.
Continue Reading Delaware Supreme Court Enhances Defenses Available to Directors and Financial Advisors Where Well-Run Sale Processes and Adequate Disclosure

Joining a rising chorus of criticism of “disclosure settlements” in merger class actions, Chancellor Bouchard (in In re Trulia, Inc. Stockholder Litigation) rejected a proposed settlement of a stockholder class action challenging Zillow, Inc.’s acquisition of Trulia, Inc. in a stock-for-stock merger that closed in February 2015.  After defendants agreed to moot plaintiffs’ disclosure claims by supplementing their disclosures before the stockholder vote, the proposed settlement would have resulted in a fee to plaintiffs’ counsel and broad releases for defendants, but no economic benefit to the stockholder class.  Although not the first to express distaste for such settlements and the incentives they create, the Chancellor’s Opinion is notable for its comprehensive discussion of their problems and firm proposals to avoid such problems going forward, including a clear message that the Court will no longer hesitate to reject disclosure settlements involving supplemental disclosures of dubious value and overbroad releases, even if unopposed.
Continue Reading Chancery Court Rejects Disclosure-Only Settlement, Suggests in Future Such Settlements Will Be Approved Only in Narrow Circumstances

Re-affirming the significance of stockholder approval in corporate governance, the Delaware Supreme Court recently held that transactions approved by a fully informed, uncoerced stockholder vote will be reviewed under the business judgment rule when not subject to the entire fairness standard of review.  Corwin v. KKR Fin. Holdings LLC, No. 629, 2014 (Del. Oct. 2, 2015).  Last Friday, the Court unanimously affirmed Chancellor Bouchard’s dismissal of a post-closing damages action in In re KKR Fin. Holdings LLC S’holder Litig., 101 A.3d 980, 1003 (Del. Ch. 2014).  The opinion by Chief Justice Strine canvassed Delaware authority from as far back as 1928 to find extensive support for the proposition that “the approval of the disinterested stockholders in a fully informed, uncoerced vote that was required to consummate a transaction has the effect of invoking the business judgment rule.”  Op. at 7-8 n.19.
Continue Reading Corwin v. KKR: The Significance of Stockholder Approval

Addressing motions to dismiss in connection with the acquisition of Zale Corporation by Signet Jewelers, Vice Chancellor Parsons (in In Re Zale Corporation) dismissed claims against the Zales directors (under DGCL §102(b)(7)) and Signet, but denied dismissal of claims against Zales financial advisor.  Based on the allegations in the plaintiffs’ complaint, before being engaged, the financial advisor told the Board it had “limited prior relationships and no conflicts with Signet,” even though it had received approximately $2 million in fees in the year before the merger agreement.  More significantly for the Court, the complaint alleged that the financial advisor did not disclose – until after the merger agreement was signed – that it had made a presentation to Signet advocating a purchase of Zales shortly before Signet approached Zales, and that a senior member of the team that presented to Signet later became a member of the team that advised Zales.
Continue Reading Further Chancery Court Guidance on Financial Advisor Aiding and Abetting Claims