Vice Chancellor Laster of the Delaware Chancery Court recently issued an important opinion in In Re: Appraisal of Dell Inc. C.A. No. 9322-VCL (May 31, 2016), holding that merger consideration offered to Dell, Inc’s common stockholders did not reflect the “fair value” of Dell’s shares. The decision will require the company to pay dissenting stockholders a 28% premium as compared to the consideration that was received by stockholders who did not exercise their appraisal rights. The opinion is notable for several reasons, including because the Court declined to accept that the negotiated market price for the deal was the best available indication of the fair value of the company. Instead, the Court challenged the accuracy of prevailing stock market valuations of Dell, and after criticizing several aspects of the sale process, ultimately concluded that neither the stock price nor the price negotiated during the sale process fairly reflected the fair value of the company. 

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Vice Chancellor Laster of the Delaware Chancery Court enjoined certain directors of Cogentix Medical, Inc. from implementing a plan to reduce the size of the Company’s board to defeat a proxy fight.  Pell v. Kill, C.A. No. 12251-VCL (Del. Ch. May 19, 2016).  The opinion’s application of Delaware’s standard for reviewing director action that affects shareholder voting strongly favors protecting stockholder voting rights.

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In a recent Delaware Chancery Court decision, In re Chelsea Therapeutics International Ltd. Stockholders Litigation, C.A. No. 9640-VCG (Del. Ch. May 20, 2016), Vice Chancellor Glasscock explained that the good faith requirement of the duty of loyalty offers an equity judge a “fiduciary out” to the application of the business judgment rule.  According to the Vice Chancellor, the court can consider the presence of “bad faith” in connection with a board decision, even if the directors were disinterested and independent.  But consideration of “bad faith” in this context is relevant only in the rare instance where the nature of the board action cannot be understood to be in the corporate interest.  In this case, the court rejected plaintiffs’ “pursuit of that rare bird,” dismissing the claims brought by representative stockholders.

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On May 24, 2015, the Delaware Supreme Court ruled that former stockholders’ claims against a corporation, under New York or Florida law, for damages allegedly caused by holding already-purchased stock in reliance on purported misrepresentations constitute direct claims.  Citigroup Inc. v. AHW Invest. P’ship, MFS, Inc., No. 614 2015 (“AHW”).  This ruling addressed a certified question from the Second Circuit Court of Appeals, which sought guidance on whether so-called “holder claims” were direct or derivative in nature.  The ruling is most notable because the court expressed reservations about the validity of holder claims under Delaware law, although it did not decide the issue.

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The federal government has enjoyed a recent string of successful challenges to proposed mergers on antitrust grounds.  These have ranged from the blocking of the combination of Staples and Office Depot by the United States District Court for the District of Columbia earlier this month to the abandonment of merger plans by Time Warner Cable and Comcast, as well as Halliburton and Baker Hughes, in the wake of government scrutiny.  But this trend was interrupted when Judge John E. Jones III of the United States District Court for the Middle District of Pennsylvania denied a motion for a preliminary injunction brought by the Federal Trade Commission (“FTC”) and the Pennsylvania Attorney General against the proposed merger of two Harrisburg-area hospital groups.

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The Delaware Chancery in In re Wal-Mart Stores, Inc. Del. Deriv. Litig., C.A. No. 7455-CB (Del. Ch. May 13, 2016) dismissed derivative litigation on issue preclusion grounds after another court dismissed a competing derivative action. 

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The Delaware Chancery in In re Appraisal of Dell Inc., C.A. No. 9322-VCL (Del. Ch. May 11, 2016) considered whether mutual funds who were beneficial owners of Dell shares could pursue an appraisal action in the face of evidence showing that the shares were mistakenly voted in favor of a merger by an intermediary custodial bank.  The court ruled that the petitioners were barred from seeking an appraisal and, in so holding, provided a helpful framework for the burden-shifting analysis for proof of compliance with appraisal statute requirements.

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On Friday, May 6, an en banc Delaware Supreme Court affirmed the Delaware Court of Chancery’s dismissal with prejudice of a claim against Merrill Lynch, Pierce, Fenner & Smith (“Merrill Lynch”) for aiding and abetting a breach of fiduciary duty while serving as financial advisor to Zale Corp. (“Zale”) in its sale to Signet Jewelers (“Signet”).  Singh v. Attencorough, No. 645, 2015 (Del. May 6, 2016) (en banc).  The decision has significant implications for (i) the effect of stockholder approval of a merger on the standard of review and (ii) investment banker conflicts. 

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In Peter Brinckerhoff v. Enbridge Energy Company, Inc., et al., C.A. No. 11314-VCS, memo. op. (Del. Ch. Apr. 29, 2016), newly appointed Vice Chancellor Slights of the Delaware Chancery Court dismissed class and derivative claims brought by an investor in a master limited partnership, Enbridge Energy Partners, L.P. (the “MLP”), against the general partner, Enbridge Energy Company, Inc., and its controlling parent (together, “Enbridge”), and Enbridge’s affiliates and directors.  This opinion is the latest in a series of Delaware court decisions reinforcing that, under Delaware law, “a limited partnership agreement may eliminate the fiduciary duties owed by the general partner to the partnership and its limited partners in favor of” specifically delineated contractual obligations. 

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On May 5, 2016, the New York Court of Appeals ruled that courts should apply the business judgment rule in shareholder lawsuits challenging going-private mergers, as long as shareholders were adequately protected—a decision that expressly follows the approach of the Delaware Supreme Court in its seminal case, Kahn et al. v. M&F Worldwide, 88 A.3d 635 (Del. 2014) (“MFW”). In the Matter of Kenneth Cole Productions Inc. S’holder Litig., No. 54, 2016 WL 2350133 (N.Y. May 5, 2016) (“KCP”). KCP marks the first time that New York’s highest court determined that the business judgment rule should apply in such situations. 

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The Delaware Supreme Court is the latest court to weigh in on the increasingly contentious question of whether a foreign corporation’s compliance with a state’s statutory registration requirements amounts to a broad consent to general personal jurisdiction within that state.  Writing for the majority in a rare 4-1 split decision, Chief Justice Strine held that it would be “unacceptably grasping” in today’s economy to require foreign corporations to acquiesce to Delaware’s exercise of general jurisdiction as a price of doing business in the state.  In so ruling, the Court partially overruled its own decision in Sternberg v. O’Neil, 550 A.2d 1105 (Del. 1988), which held that registering to do business in the state pursuant to 8 Del. C. § 371 and designating an agent for service of process pursuant to 8 Del. C. § 376 amounted to “actual consent” to Delaware’s exercise of general jurisdiction.

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