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In a recent decision, the Delaware Court of Chancery found that the board omitted material information from its proxy statement recommending stockholders vote in favor of an all-cash acquisition of the company, and thus “Corwin cleansing”[1] did not apply.  Nonetheless, the court dismissed all claims against the directors because the complaint failed to adequately allege that they acted in bad faith, as required by the company’s Section 102(b)(7) exculpation provision.  See In re USG Corp. S’holder Litig., Consol. C.A. No. 2018-0602-SG (Del. Ch. Aug. 31, 2020).

This decision provides helpful guidance regarding the kind of information that should be included in a merger proxy statement.  It also provides a reminder that Corwin is not the only defense available to directors at the motion to dismiss stage.  In particular, Section 102(b)(7) remains a powerful tool to support dismissal of stockholder claims against directors, even in cases where the proxy omits material information and/or the transaction is subject to “Revlon duties.”[2]
Continue Reading Stockholder Claims Dismissed Even After Corwin Defense Fails

A recent decision of the Delaware Court of Chancery in the ongoing WeWork/SoftBank litigation addressed a previously unresolved question:  can management withhold its communications with company counsel from members of the board of directors on the basis that such communications are privileged?  Building on past Delaware decisions concerning directors’ rights to communications with company counsel, including in the CBS case we previously discussed here, the court clarified that directors are always entitled to communications between management and company counsel unless there is a formal board process to wall off such directors (such as the formation of a special committee) or other actions at the board level demonstrating “manifest adversity” between the company and those directors.  See In re WeWork Litigation, C.A. No. 0258-AGB (Del. Ch. August 21, 2020).  In other words, management cannot unilaterally decide to withhold its communications with company counsel from the board (or specified directors management deems to have a conflict).
Continue Reading Recent Decision Confirms Directors’ Right to Access Privileged Communications Between Management and Company Counsel

In an important decision for M&A professionals and other board advisors, the Delaware Court of Chancery addressed a stockholder plaintiff’s claims that the target board’s financial advisor and law firm, as well as the private equity buyer, aided and abetted a breach of fiduciary duty by the target board in connection with a take-private merger.  See Morrison v. Berry, C.A. No. 12808-VCG (Del. Ch. June 1, 2020).  While the claim against the financial advisor was allowed to proceed, the claims against the law firm and buyer were dismissed.  These diverging results provide early guidance as to when the Delaware courts will (and when they will not) dismiss aiding and abetting claims.  In many cases, the determining factor will be whether the complaint pleads facts raising a reasonably conceivable inference that the advisor, buyer, or other third party knew the board was engaging in a breach of its fiduciary duty.  This has important implications for the way board advisors and M&A buyers should approach a situation in which they become aware that the board of a target company is unaware of some material fact that could conceivably affect its ability to fulfill its fiduciary duties.
Continue Reading Knowledge Is Key: Recent Decision Addresses Aiding and Abetting Claims Against Board Advisors And Buyer

Last week, the Delaware Court of Chancery upheld the terms of an agreement requiring The Chemours Company to arbitrate a challenge to its spin-off from DuPont. In doing so, Vice Chancellor Glasscock rejected Chemours’ claims that the process DuPont followed in structuring and executing the spin-off rendered the terms of the spin-off unconscionable and thus Chemours’ consent to arbitration ineffective.[1]  The Chemours decision is important as it recognizes that parent companies rely on the parent-subsidiary relationship in structuring spin-offs and in doing so need not follow an arm’s length process with its subsidiary as would apply to a transaction with an unrelated third party.
Continue Reading Don’t Bite the Hand that Feeds You: Delaware Court of Chancery Holds Spin-Offs Are Not Unconscionable

On March 18, 2020, the Delaware Supreme Court issued an opinion in the closely watched appeal in Sciabacucchi v. Salzberg, a case involving a challenge to charter provisions of three Delaware corporations requiring stockholder plaintiffs to litigate claims under the Securities Act of 1933 (the “1933 Act”) in federal court. The en banc Supreme…

Cleary Gottlieb’s “2019 Developments in Securities and M&A Litigation” discusses major developments from 2019 and highlights significant decisions and trends ahead.

In Lorenzo, the most significant securities decision of 2019, the Supreme Court clarified the scope of “scheme liability” under Rule 10b-5(a) and (c). The Court also declined to rule on several…

Vice Chancellor Slights, of the Delaware Court of Chancery, included a slightly self-effacing, and only slightly humorous, note in his recent opinion in a fiduciary claim against the directors of Tesla, Inc., to the effect that the defendants have reason to believe that they drew the wrong judge in the case.  The case relates to the 2018 incentive compensation award to Tesla’s CEO, Elon Musk, that caps out at about $55 billion (that “b” is not a typo).  The footnote concerns, in part, Vice Chancellor Slights’ determination, in a separate recent claim alleging fiduciary breaches by the Tesla board, that members of Tesla’s board were not independent.[1]
Continue Reading Update on Director Independence

Standardization can be a virtue and one that M&A lawyers, likely due to self-interest and ego, sometimes resist.  If venture financing and derivatives practices can have widely accepted forms of legal documentation as a starting point, why should M&A be an exception?  Ironically, agreements for takeovers of publicly traded companies – once revered as a rarified realm that only an elite group huddled in skyscrapers in Manhattan could navigate – has evolved considerably toward standard forms thanks to enhanced attention to these publicly filed agreements and an effort by Delaware courts to draw clearer guidelines about precisely what will and will not fly in the world of “public M&A.” 
Continue Reading Guidance on Navigating the Atlassian Term Sheet: Understanding the Substantive Implications Behind the Virtues of Standardization in M&A

Cleary Gottlieb’s “2019 Mid-Year Developments in Securities and M&A Litigation” discusses major developments from the first half of 2019 and highlights significant decisions and trends ahead.

In Lorenzo, the most significant securities decision in 2019 so far, the Supreme Court clarified the scope of “scheme liability” under Rule 10b-5(a) and (c). The…

After the Delaware Supreme Court’s recent Aruba decision,[1] many commentators predicted that, going forward, the Court of Chancery would not rely on the target’s unaffected market trading price to determine fair value in appraisal cases, other than as a “check” on other valuation methodologies.  It may therefore come as a surprise that in a decision issued last Friday, the Court of Chancery determined fair value to be equal to the target’s unaffected trading price.  See In re: Appraisal of Jarden Corporation, Consolidated C.A. No. 12456-VCS (Del. Ch. July 19, 2019).  Although still subject to appeal, this decision is also notable because the fair value determination came out 18% below the deal price despite the petitioners having some success in attacking the target board’s sale process, which involved no pre- or post-signing market check. 
Continue Reading Appraisal Update: Unaffected Market Price Makes a Comeback