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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

Last week, the Delaware Supreme Court reversed the Delaware Court of Chancery’s dismissal of a Caremark claim[1] that arose out of the Blue Bell ice cream listeria outbreak in the mid-2010s.  See Marchand v. Barnhill, No. 533, 2018 (Del. June 18, 2019).  The Delaware Supreme Court’s opinion in this closely watched case provides useful guidance to directors on the proper role of the board in overseeing risk management.
Continue Reading Not So Sweet: Delaware Supreme Court Revives Caremark Claim, Provides Guidance On Directors’ Oversight Duties

The Delaware Supreme Court issued a decision last week that further clarifies when MFW’s “dual protections” must be put in place in order to qualify the transaction for deferential business judgment review.  See Olenik v. Lodzinski, No. 392, 2018 (Del. April 5, 2019).

Under MFW, business judgment review applies to a merger proposed by a controlling stockholder conditioned “ab initio” on two procedural protections: (1) the approval of an independent, adequately-empowered special committee that fulfills its duty of care; and (2) the uncoerced, informed vote of a majority of the minority stockholders.  If the controlling stockholder does not commit to these dual protections ab initio, i.e., from the beginning of negotiations, then the traditional entire fairness standard applies instead.[1]
Continue Reading Delaware Supreme Court Provides Further Guidance on Timing Requirement Under MFW

In recent years, in part in response to decisions like Corwin that have raised the pleading standard for stockholder plaintiffs, the Delaware courts have encouraged stockholders to seek books and records under Section 220 of the Delaware General Corporation Law (DGCL) before filing stockholder derivative or post-merger damages suits, and – in response – each year more stockholders have done so.  As a result of this trend, we have already seen several important decisions addressing books and records demands in 2019.  These decisions have (i) clarified the types of documents that may be obtained, including (in some limited circumstances) personal emails or text messages; (ii) explained when a stockholder’s demand will be denied as impermissibly lawyer-driven (and when it will not be); and (iii) described the threshold showing of suspected wrongdoing that stockholders must make.  As the plaintiffs’ bar makes more use of Section 220, these are important issues for boards of directors to consider.
Continue Reading The Rise of Books and Records Demands Under Section 220 of the DGCL

Last week, the Delaware Court of Chancery found that a target company in an agreed merger properly terminated the merger agreement following the passage of the specified “end date” where the buyer failed to exercise its right under the agreement to extend the end date.  See Vintage Rodeo Parent, LLC v. Rent-a-Center, Inc., C.A. No. 2018-0927-SG (Del. Ch. Mar. 14, 2019).  The decision is a stark reminder that courts will enforce the terms of a merger agreement as written, and that the failure to comply with seemingly ministerial formalities can have severe consequences.   
Continue Reading Target’s Termination of Merger Agreement Approved Based on Plain Contract Language

On December 19, 2018, the Delaware Court of Chancery issued an opinion holding that Delaware law does not permit corporations to use charter provisions to require stockholders to litigate certain claims brought under the federal securities laws in a specific forum.  In Sciabacucchi v. Salzberg, Vice Chancellor Laster determined that such forum-selection provisions are…

In In re Xura, Inc. Stockholder Litigation,[1] decided earlier this week, the Delaware Court of Chancery denied the target CEO’s motion to dismiss claims that he breached his fiduciary duties by “steer[ing]” the company into an allegedly unfair acquisition by a private equity firm that promised to retain him post-acquisition, while knowing that his job was in jeopardy if the target remained independent.  This case is yet another example of why disclosures are so important in the post-Corwin[2] era:  Vice Chancellor Slights rejected the CEO’s argument that the claims against him were extinguished by the stockholder vote approving the transaction, finding that a number of material omissions precluded a finding that the stockholders’ vote was fully informed.  The vote was thus ineffective to invoke the business judgment rule at the pleading stage.
Continue Reading Claim Against Target CEO Survives Dismissal, While Aiding and Abetting Claim Against Private Equity Buyer is Dismissed

The Delaware Court of Chancery recently denied Corwin cleansing[1] in a case involving the sale of a public company while it was engaged in a restatement of its prior audited financial statements.  See In re Tangoe, Inc. S’holders Litig., C.A. No. 2017-0650-JRS (Del. Ch. Nov. 20, 2018).  If this sounds familiar, that is because it is the second time in two years that the Court of Chancery has denied a motion to dismiss shareholder litigation on Corwin grounds where the target was in the middle of a restatement process.[2]  Together, these decisions suggest that if a board decides to sell the company while under a cloud of an ongoing restatement process, it would need to satisfy a heightened level of scrutiny of its disclosures in order to obtain the benefit of Corwin.  The court in Tangoe, however, sought to reassure practitioners that it is not impossible to satisfy Corwin in a case involving an ongoing restatement by the target, and provided a checklist of the kinds of facts that, if disclosed, would result in pleading stage dismissal of a shareholder lawsuit in such a case.
Continue Reading Corwin Cleansing Denied For Company Sold During Restatement Process—Sound Familiar?

On May 14, 2018, certain members of the CBS board filed suit in Delaware seeking authorization to issue a special dividend intended to dilute the voting control of NAI, CBS’s controlling stockholder. Shortly after NAI filed a countersuit on May 29, 2018, NAI moved to compel the production of certain communications involving CBS’s outside and in-house counsel, including privileged documents concerning the decision to declare the dilutive dividend. NAI’s motion raised important issues regarding the rights of board members to access privileged communications with company counsel, which we discuss in our latest post.
Continue Reading Lessons Learned from the CBS-NAI Dispute: Rights of Board Members to Access Privileged Communications with Company Counsel