Case Law Developments

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In recent years, when pursuing corporations and their officers for violations of the U.S. securities laws, the Securities and Exchange Commission (“SEC”) Division of Enforcement has increasingly brought its claims to the SEC’s in-house administrative law judges (ALJs) rather than the federal civil courts.  In fact, last year, over 90% of the SEC’s actions against public companies were brought to the SEC’s ALJs—whereas five years ago, only 33% of those cases were brought as ALJ proceedings.  The credit for this remarkable increase in ALJ proceedings belongs in large part to the 2010 Dodd–Frank Act,[1] which expanded the ALJs’ jurisdiction and authorized new penalties that ALJs could impose, making it unnecessary for the SEC to bring many claims in civil courts.
Continue Reading Changes and Challenges in the SEC’s ALJ Proceedings

In a recent decision[1], Vice Chancellor Laster of the Delaware Court of Chancery clarified certain issues related to the obligations of a controlling stockholder that often arise in connection with going private and similar transactions.  The case involved a relatively conventional proposal by a controlling stockholder (the Anderson family) to acquire the remaining shares of Books-A-Million, Inc. (“BAM”) from BAM’s minority stockholders.  The family structured the proposal with the goal of satisfying the conditions of the MFW decision so that any challenge to the transaction would benefit from the favorable “business judgment” level of judicial review.[2]
Continue Reading Delaware Chancery Applies MFW to Dismiss Challenge to Going Private Transaction and Clarifies Obligations of Controlling Stockholders

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 the Delaware Supreme Court narrows the avenues for post-closing challenges to mergers (see our discussions of the implications of the Corwin and Cornerstone decisions here, here, here and here), we expect that plaintiffs’ lawyers will increasingly seek to base their merger suits on specific allegations of conflicts that may have tainted the oversight of processes to sell companies in hopes of supporting claims for breaches of the duty of loyalty and the applicability of the enhanced scrutiny of the entire fairness doctrine.  Given that virtually every merger includes some special merger benefits for directors that may be susceptible to an attempt at such a claim, it is timely that the Delaware Court of Chancery issued a decision over the summer of 2016 that provides useful guidance on how to evaluate the most common of special merger benefits to insiders:  protection against exposure to pre-merger claims.
Continue Reading When Do Merger Benefits to Directors Constitute Disabling Conflicts?

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

In a recent ruling (Halo Elecs., Inc. v. Pulse Electronics, Inc. and Stryker Corp. v. Zimmer, Inc.[1]), the Supreme Court adopted a relaxed and more plaintiff-friendly standard for determining whether to award enhanced damages in patent infringement litigation.  This ruling should be taken into account when considering allocation of patent infringement risks in M&A transactions, including in connection with representations and warranties and associated indemnities.
Continue Reading Halo’s Enhanced Patent Infringement Damages Bring Enhanced M&A Risks

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

In a decision with important consequences for merger and acquisition transactions and the litigation resulting from those transactions, a divided New York Court of Appeals held last week that the common interest doctrine applies only to post-signing, pre-closing communications between parties to a merger agreement if they relate to pending or anticipated litigation.  Other communications between separately represented parties to a merger (or other commercial transaction) are not entitled to privilege under New York law.
Continue Reading New York’s Highest Court Holds Common Interest Doctrine Inapplicable to Commercial Transactions Absent Litigation

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