Merger Litigation

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In a recent decision, the Delaware Court of Chancery grappled with the question whether—and to what extent—claims for breach of fiduciary duty can be waived ex ante in a corporate shareholder agreement.  Specifically, in New Enterprise Associates 14 LP v. Rich, the court denied a motion to dismiss claims for breach of fiduciary duties brought against directors and controlling stockholders of Fugue, Inc. (the “Company”) by sophisticated private fund investors who had agreed to an express waiver of the right to bring such claims.[1]  Importantly, the court found that fiduciary duties in a corporation can be tailored by parties to a shareholders agreement who are sophisticated, and were validly waived by the voting agreement in this case (which specifically addressed the type of transaction at issue).  The court, however, held that public policy prohibits contracts from insulating directors or controlling stockholders from tort or fiduciary liability in a case of intentional wrongdoing, which the court found was plausibly alleged in this case. The court’s opinion has implications for sophisticated investors in venture capital and other private transactions involving Delaware corporations. The opinion cautions against overreliance on express contractual waivers, on the one hand, while also serves as a reminder that at least in some circumstances sophisticated parties can contract around default legal principles (including fiduciary duties), even with respect to corporations.…

Continue Reading Delaware Chancery Court Highlights Tension Between Freedom of Contract and Corporate Fiduciary Duties

On May 1, 2023, the Delaware Court of Chancery addressed an unsettled question under Delaware law—whether a fully informed, uncoerced vote of disinterested stockholders (so-called “Corwin cleansing”[1]) can be applied to defeat claims to enjoin defensive measures under Unocal Corp. v. Mesa Petroleum Co.…

Continue Reading Corwin Cleansing Denied In Action For Post-Closing Injunctive Relief Under Unocal

Antitrust enforcement agencies have recently asserted that private equity firms deserve heightened scrutiny when engaging in corporate transactions. However, in the recent Change Healthcare decision, the Court found that a proposed divestiture to a private equity sponsor would adequately preserve competition. Rejecting the DOJ’s arguments to the contrary, the Court found that the sponsor’s “incentives…

In Stoyas v. Toshiba Corp., a securities class action that has produced a number of notable decisions about the application of the federal securities laws to unsponsored ADRs, the Ninth Circuit recently declined to review the district court’s ruling denying to certify a class.  In doing so, the Ninth Circuit let stand the district court’s novel ruling, which found the relevant named plaintiff to be an atypical class representative after determining that it had purchased the unsponsored ADRs in foreign transactions.[1]…
Continue Reading Ninth Circuit Denies Class Cert Appeal in Toshiba Securities Litigation Concerning Unsponsored ADRs

In a noteworthy new post-sale appraisal ruling, the Delaware Court of Chancery in BCIM Strategic Value Master Fund, LP v. HFF, Inc.[1] awarded the petitioner additional consideration based on an increase in the value of the target company that arose between signing and closing.  The unique facts of this case, and particularly the sustained outperformance of the target in the interim period before closing, are worth keeping in mind in evaluating the risk that a successful appraisal proceeding can increase the amount of consideration payable in a public company acquisition.  Below we break down the Court’s analysis in determining fair value, how changes in each merger party’s valuation drove the appraisal result, and key takeaways.
Continue Reading Appraisal Update: Post-Signing Value Changes Drive Appraisal Result

In Wei v. Zoox, Inc., the Delaware Court of Chancery found that an appraisal petition had been filed for the sole purpose of gathering discovery to be used in drafting a fiduciary duty complaint challenging a merger where the former stockholders had lost standing to seek books and records under Section 220 due to the rapid closing of the merger.  Nonetheless, in a novel ruling, the court permitted the appraisal petitioners to pursue some discovery in the appraisal action, limited to what would have been available to them under Section 220 had they not lost standing to seek such records.  The court rejected the petitioners’ request for broader discovery that is normally available in an appraisal action in light of its finding that the petitioners’ true purpose in filing the appraisal action was to seek Section 220-like books and records.
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Continue Reading A Back-Door Section 220? Chancery Court Limits Appraisal Petitioners’ Demand for Broad Discovery

In a recent opinion addressing the enforcement of trading restrictions (“lock-ups”) that are commonly agreed in connection with a business combination transaction between a special purpose acquisition company (“SPAC”) and a target company (“de-SPAC transaction”), the Delaware Court of Chancery determined that the restrictions at issue did not apply to certain shares held by the…

In one of the first opinions addressing fiduciary duty claims in the context of a transaction involving a special purpose acquisition company (“SPAC”), the Delaware Court of Chancery determined that the SPAC shareholders’ right to redeem can be undermined by insufficient disclosures regarding the transaction and allowed class-action claims to continue against a SPAC’s controlling…

The Delaware Supreme Court recently affirmed the Court of Chancery’s 2020 decision in AB Stable VIII LLC v. MAPS Hotels & Resorts One LLC, which blessed a buyer’s termination of a merger agreement on grounds that the target breached its covenant to operate its business in the ordinary course between signing and closing.  In this closely watched appeal, the Delaware Supreme Court held that the ordinary course covenant in this case was breached because of the unprecedented steps the target hotel company took in response to COVID-19, even though the court found those steps to have been reasonable and consistent with the actions of others in the same industry.  This decision provides important guidance both in terms of how such covenants should be drafted but also how to deal with unprecedented crises between signing and closing.[1] …
Continue Reading The Delaware Supreme Court Speaks on “Ordinary Course” Covenants