Delaware Law

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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

Courts have long applied the exacting “entire fairness” standard to one-step, going-private merger transactions.  In Delaware, after years of agonizing by courts and commentators, this changed in 2013 in Kahn v. M&F Worldwide Corp. (“MFW”).[1]  MFW held that if certain procedural protections were observed in the course of the transaction the far more deferential business judgment standard would be applied.  The required safeguards included, most notably, negotiation and approval of the transaction by a committee of the target’s independent directors and subsequent approval by an informed majority vote of target stockholders unaffiliated with the acquiror.  Last week, the New York Court of Appeals adopted Delaware’s MFW approach in its review of the Kenneth Cole Productions going-private transaction.[2] 
Continue Reading Business Judgment Rule Applied to Going-Private Mergers in New York

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

The recently introduced “Brokaw Act” that proposes changes to the rules governing the reporting of ownership in U.S. public companies would expand the definition of “beneficial owner” to include any person with a “pecuniary or indirect pecuniary interest”, including through derivatives, in a particular security (borrowing the concept from the SEC’s insider reporting regime, which captures the “opportunity to profit” from transactions related to the relevant security). If passed and ultimately adopted, these changes would have a significant impact on the reporting obligations of investors by expanding the types of interests that would be counted toward the 5% threshold requiring the filing of a Schedule 13D. Because indentures often incorporate by direct reference the 13(d) concept of beneficial ownership, expansion of the definition could have ripple effects beyond increased public ownership filings.
Continue Reading Indentures and the Brokaw Act: Will Expanding the Definition of Beneficial Ownership Broaden Change of Control Triggers?

In two recent cases, the Delaware courts addressed the question of when a minority stockholder has sufficient influence over a corporation to be deemed a controlling stockholder.  The issue typically arises in the context of a transaction between the minority stockholder and the corporation, such as an attempt to acquire the corporation’s publicly held shares.  In such cases, the stakes for the minority stockholder can be quite high as transactions between a corporation and a controlling stockholder may be subject to the exacting  “entire fairness” standard. 
Continue Reading Controlling Minority Stockholders — When Does a Minority Constitute a Majority?

The Delaware Court of Chancery’s recently published opinion in Amalgamated Bank v. Yahoo!, Inc.[1] (the “Opinion”) provides a reminder for  directors about the importance of process in satisfying fiduciary duties when evaluating and approving executive compensation packages.  In the Opinion, which deals with Amalgamated’s demand under Section 220 of the Delaware General Corporation Law to inspect certain books and records of Yahoo! in connection with the hiring and firing of its Chief Operating Officer, Vice Chancellor Laster discusses practices that should be routine in a board’s review of executive compensation proposals and highlights procedural pitfalls that have been noted in numerous Delaware law decisions dating back at least to the series of cases involving compensation practices at Disney beginning more than a decade ago.
Continue Reading Delaware Court of Chancery Offers Practical Lessons for Compensation Committees

Updating our recent posting concerning the enforcement of disclaimers of extra-contractual liabilities under Delaware law, in FdG Logistics LLC v. A&R Logistics Holdings, Inc. (Del. Ch. Feb. 23, 2016) the Delaware Court of Chancery held, in the context of a motion to dismiss, that any such disclaimer must be unambiguously expressed as a statement by the aggrieved party in order to be effective.

FdG Logistics arose out of the purchase of a trucking company by a private equity firm through a merger transaction.  The purchaser alleged that the target company “engaged in an extensive series of illegal and improper activities that were concealed from it during pre-merger due diligence” and asserted, among other things, that the selling securityholders had committed common law fraud based on alleged misrepresentations in extra-contractual materials, including a confidential information memorandum and a management presentation.
Continue Reading Another Update on Disclaimers of Extra-Contractual Liability in Delaware

The Oregon Supreme Court, overturning a lower court ruling, has enforced a Delaware exclusive forum bylaw.  The case, Roberts v TriQuint Semiconductor, Inc., is notable for its clear approach to the choice of law issues raised in this type of challenge and supports the increasingly common practice of public company targets adopting exclusive forum bylaws when entering into mergers agreements.
Continue Reading Oregon Supreme Court Enforces Delaware Exclusive Forum Bylaw Adopted on a Cloudy Day