Delaware Court Applies Entire Fairness to Take-Private
M&A and Corporate Governance Litigation
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  • Delaware Court Of Chancery Declines To Dismiss Fiduciary Duty And Aiding And Abetting Claims After Applying Entire Fairness To Take-Private Transaction
    04/23/2026
    On February 27, 2026, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery granted in part and denied in part defendants’ motions to dismiss in a putative stockholder class action challenging a $4 billion take-private transaction of a software company (the “Company”). In re EngageSmart, Inc. S’holder Litig., C.A. No. 2023-1093-JTL (Del Ch. Feb. 27, 2026). The Court held that the entire fairness test would apply to breach of fiduciary duty claims after finding the MFW safe harbor inapplicable because the complaint adequately alleged the stockholder vote was not fully informed. The Court also sustained a claim for aiding and abetting breaches of fiduciary duty against the Company’s financial advisor but dismissed the aiding and abetting claim against the buyer.

    Plaintiffs challenged both the process and the price of the take-private transaction, alleging that the process was motivated by the controlling stockholder’s liquidity needs and engineered to favor its preferred counterparty, another private equity firm. Plaintiffs also alleged that, despite the formation of a special committee and its engagement of its own advisors, the controller and its longtime financial advisor (who was engaged to advise the Company) shaped the process to stymie competition. The resulting transaction cashed out public stockholders at $23 per share, while the controller received the same for approximately 74% of its shares, rolled over its remaining 26% of shares for a 35% post-transaction stake, and allegedly received an undisclosed $500 million post-closing dividend on its rolled-over shares.

    The Court rejected defendants’ argument to apply the business judgment rule based on the irrebuttable presumption set forth in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014), and noted the entire fairness standard will apply. The Court found that plaintiffs adequately alleged five material disclosure deficiencies, including the failure to disclose: the controlling stockholder’s alleged conflicts (its significant need for liquidity and the undisclosed $500 million dividend); the Company’s financial advisor’s purported conflicts of interest with the controller and the buyer; the supposed involvement of the controller and the Company financial advisor in the deal process; and the nature of certain business relationships between a special committee member, the controller, and the winning bidder.

    On these grounds, for purposes of pleading only, the Court sustained claims against all of the director defendants but one (whom the Court found facially independent and disinterested and thus exculpated). The Court also sustained an aiding and abetting claim against the Company’s financial advisor. The Court dismissed the claims against the buyer, whose conduct did not rise to the level necessary to support an aiding and abetting breach of fiduciary duty or disclosure.
    Categories: Controller Transactions, Deal Disputes, Disclosures, Standard of Review

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