On June 16, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed breach of fiduciary duty and other claims brought derivatively against the directors and former chief financial officer of Qualcomm, Inc. (“Qualcomm”) for failure to plead demand futility, finding that the complaint did not adequately demonstrate that the directors faced a substantial likelihood of personal liability.  In re Qualcomm Inc. FCPA Stockholder Derivative Litigation, C.A. No. 11152-VCMR (Del. Ch. June 16, 2017) (letter).  The stockholder plaintiffs’ derivative complaint alleged that Qualcomm’s board ignored red flags that resulted in alleged violations of the Foreign Corrupt Practices Act (“FCPA”) and a March 2016 U.S. Securities and Exchange Commission (“SEC”) cease-and-desist order.  The Court found, however, that the complaint did not adequately allege that “the board consciously disregarded the [alleged] red flags” and dismissed the claims.  

Read more

On May 26, 2017, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery granted plaintiffs’ request to sever and stay fiduciary duty breach claims settled with directors of Good Technology Corporation (“Good”) and other defendants, notwithstanding the opposition of the sole remaining defendant, a financial advisor to Good, in connection with the acquisition of Good by BlackBerry Ltd. (“BlackBerry”), alleged to have aided and abetted those breaches.  In re Good Tech. Corp. Stockholder Litig., C.A. No. 11580-VCL (Del. Ch. May 26, 2017) (Transcript).  Stockholder plaintiffs reached agreement on preliminary settlement terms with defendants other than the financial advisor weeks before a scheduled trial and sought to sever and stay those settled claims.  The financial advisor opposed the severance and sought a continuance of the trial, arguing that the settlement contravened the settlement consent and indemnification provisions in its engagement letter with Good—drafted in the wake of In re Rural Metro Corp., 88 A.3d 54 (Del. Ch. 2014)—intended to protect against just such an eventuality.  Noting that neither plaintiffs nor the settling defendants were parties to the engagement letter, and concluding that the advisor could recover money damages were it subsequently determined that the provisions were breached, Vice Chancellor Laster granted the severance request, denied the continuance request, and ordered the claims against the financial advisor to proceed to trial as previously scheduled.  Shortly thereafter, according to a transcript of a June 1, 2017 settlement conference, the advisor settled the claims against it for $35 million, to be funded pursuant to the indemnification agreement. 

Read more

On May 31, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery declined to dismiss purported derivative and direct stockholder claims for breaches of fiduciary duty against the directors of Charter Communications, Inc. (“Charter”) regarding share issuances to, and a voting proxy agreement with, its largest stockholder, Liberty Broadband Corporation (“Liberty”), in connection with Charter’s recent acquisition of Bright House Networks, LLC (“Bright House”) and merger with Time Warner Cable (“TWC”) (the “Acquisitions”).  Sciabacucchi v. Liberty Broadband Corp., C.A. No. 11418-VCG (Del. Ch. May 31, 2017).  The Court found that, while plaintiff did not sufficiently allege that Liberty controlled Charter, plaintiff did adequately plead that the stockholder vote approving the share issuances and voting proxy agreement suffered from “structural coercion,” and therefore failed to ratify the transactions under the doctrine established by Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015).  Because it found the briefing insufficient to efficiently analyze whether plaintiff’s claims were direct or derivative, however, the Court reserved decision on the motion to dismiss and requested supplemental briefing on the issue. 

Read more

Recent rulings issued by the Delaware Chancery Court in two appraisal cases handed wins to the defendant companies, reflecting at least some degree of temperance within the Delaware Chancery and potentially stemming the tide of decisions that favored appraisal petitioners.  These decisions, issued while the Dell and DFC Global appraisal decisions (in which the Chancery Court found that the statutory “fair value” of the stocks significantly exceeded the deal price) are before the Delaware Supreme Court, represent significant victories for the defendant companies and a warning to stockholders willing to gamble on a costly appraisal action.

On May 22, 2017, the Supreme Court of Delaware affirmed the dismissal of a breach of fiduciary duty action against the directors of Books-A-Million, Inc. and other defendants following a “squeeze-out” merger by the company’s controlling stockholders.  In re Books-A-Million, Inc. Stockholders Litigation v. Anderson, Consol. C.A. No. 11343-VCL.  Without further elaboration, the Supreme Court’s brief order provides that the decision of the Delaware Court of Chancery “should be affirmed on the basis of and for the reasons assigned” in its opinion (citing In re Books-A-Million, Inc., C.A. No. 11343 (Del. Ch. Oct. 10, 2016)).  As discussed in our post on the Chancery Court’s decision, the lower court found—based on the complaint and the proxy filed by the company in connection with the merger—that the transaction followed the framework established by the Delaware Supreme Court in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014).  Under that framework, a controlling stockholder transaction that is approved by both an independent special committee of the board—with access to its own advisors and the ability to definitively reject the deal—and an informed, uncoerced vote of the majority of minority (i.e., non-controlling) stockholders will be reviewed under the deferential “business judgment rule,” as opposed to the entire fairness standard typically applied to controlling stockholder transactions.

Read more

On May 15, 2017, Vice Chancellor Sam Glasscock III of the Delaware Chancery Court dismissed a shareholder derivative action asserting that the directors of The Williams Companies, Inc. (“Williams”) breached their duty of loyalty in connection with its entry into, and subsequent cancellation of, an agreement to acquire the remaining interest in its affiliate, Williams Partners L.P. (“WPZ”).  Ryan v. Armstrong, C.A. No. 12717-VCG (Del. Ch. May 15, 2017).  Plaintiff, a Williams shareholder, alleged that Williams’ directors were “motivated . . . by a desire . . . to entrench themselves” when they approved the WPZ acquisition in the context of “acquisition overtures” made toward Williams by another company, Energy Transfer Equity, L.P. (“ETE”).  The Court held that allegations of “defensive measures”—even if sufficient to trigger enhanced scrutiny under Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)—do not result in “automatic demand excusal.”  Therefore, because demand futility was not otherwise adequately pleaded, the Court granted dismissal under Court of Chancery Rule 23.1 for plaintiff’s failure to make a pre-suit demand on the Williams board to pursue the litigation.

Read more

On May 11, 2017, Chancellor Bouchard of the Delaware Court of Chancery dismissed with prejudice a putative class action brought by stockholders of networking solutions company Cyan, Inc. (“Cyan”) against Cyan’s board, asserting a breach of fiduciary duty and “quasi-appraisal” claim in connection with Cyan’s merger with Ciena Corporation in a cash and stock transaction. In re Cyan, Inc. Stockholders Litigation, C.A. No. 11714-CB (Del. Ch. May 11, 2017).  Plaintiffs claimed that the board failed to disclose material information in the proxy statement, which allegedly prevented Cyan’s shareholders from determining whether to pursue appraisal rights.  The Court dismissed the claims, finding that:  (i) the business judgment rule applied because the merger consideration primarily consisted of stock in a publicly traded company and plaintiffs failed to plead a breach of the duty of loyalty; and (ii) in any event the proxy disclosures were sufficient to infer that the 98% stockholder approval of the merger was a fully informed vote, thereby precluding post-closing litigation under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304, 308-09 (Del. 2015).  The Court dismissed plaintiffs’ “quasi-appraisal” claim on the same grounds, observing that quasi-appraisal was merely a remedy for a disclosure claim and not a distinct cause of action.  

Read more

On May 3, 2017, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery declined to dismiss a lawsuit brought by the buyer of EMSI Holding Company (“EMSI”) asserting post-closing claims for indemnification against the sellers—the company’s former investors—for allegedly fraudulent representations made by EMSI in the Stock Purchase Agreement (“SPA”).  EMSI Acquisition, Inc. v. Contrarian Funds, LLC, et al., C.A. No. 12648-VCS (Del. Ch. May 3, 2017).  Specifically, the Court concluded that extrinsic evidence is required to resolve an ambiguity in the SPA as to whether plaintiff’s indemnification claims were subject to contractual limitations on recovery.  Significantly, the Court also declined to import a heightened pleading standard from federal securities fraud cases to assess whether the complaint adequately pleaded that the representations were fraudulent.  Separately, the Court dismissed plaintiff’s additional claim for the “confirmation” under the Delaware Arbitration Act of an auditor’s post-closing determination—pursuant to the SPA—of purchase price adjustments, because the SPA “explicitly provide[d]” that the auditor was “acting as an expert and not an arbitrator.”   

Read more

On May 2, 2017, Vice Chancellor Laster of the Delaware Court of Chancery dismissed a purportedly derivative and putative class action brought by a minority stockholder of software company VMware, Inc. (“VMware”), a subsidiary of controlling stockholder EMC Corporation (“EMC”), in connection with EMC’s acquisition by Denali Holding Inc. (“Denali”).  Ford v. VMware, Inc., C.A. No. 11714-VCL (Del. Ch. May 2, 2017).  Plaintiff asserted breach of fiduciary duty claims against EMC, the dual directors of both EMC and VMware, and Denali, and brought aiding and abetting claims against Denali its affiliates.  The alleged breaches included (i) failing to spin off VMware to activist EMC stockholder Elliot Associates, (ii) selling VMware to a “known looter,” (iii) restricting VMware’s operations under the merger agreement and (iv) Denali’s issuance of so-called “tracking stock.”  The Court found that none of these theories sustained a viable breach of fiduciary duty claim and dismissed the action in its entirety. 

Read more

On May 4, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed for lack of post-merger standing an action by former stockholders of Massey Energy Company (“Massey”) against its former officers and directors for their alleged failure to act in good faith to ensure that Massey complied with mine safety regulations.  In re Massey Energy Company Derivative and Class Action Litigation, C.A. No. 5430-CB (Del. Ch. May 4, 2017).  The plaintiffs, who were divested of their shares in connection with a merger of Massey while the litigation was pending, purported to assert two claims:  (i) a breach of fiduciary duty derivative claim and (ii) “inseparable fraud,” styled as a “direct” claim.  As to “inseparable fraud,” plaintiffs were relying on what Chancellor Bouchard described as “dictum” in the Delaware Supreme Court’s decision in Arkansas Teacher Retirement System v. Caiafa, 996 A.2d 321, 322-32 (Del. 2010), which stated that “Delaware law recognizes a single, inseparable fraud when directors cover massive wrongdoing with an otherwise permissible merger.”  But Chancellor Bouchard found that the misconduct alleged could only constitute a derivative claim, because the allegations “implicated” the directors’ “normal duty” to the corporation to manage its affairs and the allegations of harm—including the “prospect of . . . fines, penalties . . . and the like”—are “prototypical examples of corporate harm that can be pursued only derivatively.”  The Court also concluded that plaintiffs’ allegations that the merger was “necessitated” by the misconduct were unavailing, because “inseparable fraud” is not an exception to the “continuous ownership rule for maintaining derivative standing.”

Read more

​On April 26, 2017, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a lawsuit brought by a shareholder of Star Bulk Carriers Corp. (“Star Bulk”) against its directors and entities affiliated with the director defendants.  F5 Capital v. Pappas, No. 16-530 (2d Cir. April 26, 2017).  Challenging various transactions in which Star Bulk had engaged, plaintiff asserted derivative claims for breaches of fiduciary duty and waste, as well as a purported direct class-action claim for wrongful equity dilution.  Affirming the dismissal of all claims, the Second Circuit held that (1) the equity dilution claim was not within the “limited circumstances involving controlling stockholders” to enable it to be considered a direct (rather than derivative) claim; (2) the district court nevertheless had and properly retained subject matter jurisdiction; and (3) plaintiff failed to plead demand futility, as required under Federal Rule of Civil Procedure 23.1 to maintain shareholder derivative claims.  

Read more

On April 17, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery ruled, in a post-trial decision, that defendant Cypress Semiconductor Corporation (“Cypress”) must allow plaintiff and former Cypress CEO, T.J. Rodgers, to inspect certain books and records of Cypress pursuant to Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220.  Rodgers v. Cypress Semiconductor Corp., C.A. No. 0070-AGB (Del. Ch. Apr. 17, 2017).  Chancellor Bouchard found that Rodgers, who made the demand in his capacity as a stockholder, sufficiently established a valid primary purpose for seeking inspection of the materials:  to investigate potential wrongdoing by Ray Bingham, the Executive Chairman of the Board.

Read more

On April 13, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed a shareholder derivative suit alleging a breach of fiduciary duty against the directors of Paramount Gold and Silver Corp. (“Paramount”) in connection with Paramount’s merger with Coeur Mining, Inc. (“Coeur”).  In re Paramount Gold and Silver Corp. Stockholders Litigation, Consol. C.A. No. 10499-CB (Del. Ch. Apr. 13, 2017).  In doing so, the Court (i) rejected plaintiffs’ contention that certain consent rights in a royalty agreement entered into by the parties at the time of the merger agreement constituted an unreasonable deal protection device, and (ii) found that plaintiffs had failed to identify any material deficiencies in the company’s disclosures in advance of a shareholder vote on the merger.  Chancellor Bouchard, therefore, relied on the doctrine set forth in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), and applied the business judgment rule to the directors’ decision “because the [m]erger was approved by a fully informed and uncoerced vote of a majority of Paramount’s disinterested stockholders.”

Read more

On March 31, 2017, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery declined to dismiss a shareholder claim for breach of fiduciary duty against the board of directors (the “Board”) of Saba Software, Inc. (“Saba”) in connection with Saba’s shareholder-approved all-cash merger with affiliates of private equity group Vector Capital Management, L.P. (“Vector”).  In re Saba Software, Inc. Stockholder Litigation, C.A. No. 10697-VCS (Del. Ch. Mar. 31, 2017).  The Court held that plaintiff’s allegations, if taken as true, “allow a reasonable inference that the stockholder vote approving the transaction was neither fully informed nor uncoerced.”   Therefore, notwithstanding the stockholder approval, the Court declined to apply the business judgment rule (as would ordinarily apply under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015)) and declined to dismiss the claims against the Board.  The Court did dismiss the aiding and abetting claims against Vector, finding that plaintiffs failed to allege that Vector knowingly participated in the Board’s alleged breach.

Read more

On April 5, 2017, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery granted defendants’ motion to dismiss a stockholder derivative suit against the directors of Investors Bancorp, Inc., which had asserted a claim for breach of fiduciary duty in connection with the directors’ decision to grant themselves restricted stock and stock options under an equity compensation plan previously approved by a stockholder vote.  In re Investors Bancorp, Inc. Stockholder Litigation, C.A. No. 12327-VCS (Del. Ch. Apr. 5, 2017).  Plaintiffs, Investors Bancorp stockholders, had challenged the awards as “grossly excessive compensation” and also alleged that stockholder approval of the equity compensation plan was ineffective because the plan did not contain “meaningful limits” and, in any event, the disclosures in connection with the vote were materially misleading.  But the Court found that the plan—even as alleged—did contain “director-specific limits” on equity compensation, the awards were within those limits, and the stockholder vote was fully informed.  Therefore, the Court held that the stockholder approval constituted “ratification of the awards,” rendering them subject to the “business judgment rule’s presumptive protection” and reviewable only as “waste,” which plaintiffs did not plead.

Read more

On March 23, 2017, the Supreme Court of Delaware affirmed the Court of Chancery’s denial of an injunction sought by plaintiff The Williams Companies, Inc. to prevent defendant Energy Transfer Equity, L.P. from terminating a merger of the two energy companies.  The Williams Companies., Inc. v. Energy Transfer Equity, L.P., C.A. Nos. 12168 & 12337 (Del. Mar. 23, 2017).  The 4-1 decision authored by Justice James T. Vaughn, Jr. determined that the Chancery Court erred by “adopt[ing] an unduly narrow view of the obligations imposed” by defendant’s covenants in the merger agreement to use “reasonable best efforts” to consummate the deal and “commercially reasonable efforts” to secure an opinion from its outside tax counsel—a condition precedent to the merger—that the transaction qualified for tax-free treatment.  According to the Delaware Supreme Court, those provisions “placed an affirmative obligation on the parties to take all reasonable steps to obtain the [tax-free] opinion and otherwise complete the transaction.”  Nevertheless, the Supreme Court affirmed the denial of the injunction because the Chancery Court found that defendant’s conduct (or lack thereof) did not “materially contribute” to outside tax counsel’s decision not to issue the tax-free opinion. 

Read more

On March 22, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery preliminarily enjoined a stockholder vote on the proposed acquisition by Consolidated Communications Holdings, Inc. (“Consolidated”) of FairPoint Communications, Inc. (“FairPoint”).  Vento v. Curry, C.A. No. 2017-0157-AGB (Del. Ch. Mar. 22, 2017).  Plaintiff, a Consolidated stockholder, alleged that the Consolidated board of directors breached their fiduciary duties by failing to adequately disclose the financial interests of Consolidated’s financial advisor in the transaction and sought to enjoin the vote pending distribution of corrected disclosures.  The Court agreed that the disclosure was inadequate and delayed the vote until five days after Consolidated disclosed the amount of the advisor’s fees.

Read more

On March 20, 2017, the Supreme Court of Delaware reversed the Court of Chancery’s dismissal of a lawsuit challenging a transaction between affiliated entities.  Brinckerhoff v. Enbridge Energy Co., No. 273, 2016 (Del. Mar. 20, 2017).  Plaintiff, a common unitholder of a Delaware master limited partnership, Enbridge Energy Partners, L.P. (the “MLP”), brought suit against several defendants, including the general partner Enbridge Energy Co. (“EEP GP”); its controlling parent, Enbridge, Inc. (“Enbridge”); another affiliate of each; and certain directors and officers of these entities.  Plaintiff alleged that defendants approved a transaction involving conflicts of interest in bad faith and in violation of certain provisions of the MLP’s Limited Partnership Agreement (“LPA”).  In reversing the dismissal, the Court held that (1) “good faith” and other provisions in the LPA exculpating the general partner from monetary damages can replace default fiduciary duties with a contractual good faith standard, but do not preclude equitable relief or alter the affirmative obligations under the LPA; and (2) bad faith was sufficiently alleged under the LPA “if the plaintiff pleads facts supporting an inference that [the general partner] did not reasonably believe it was acting in the best interest of the [MLP].”

Read more

On March 15, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery decided, post-trial, that a biopharmaceutical company was not required to pay a $50 million “milestone payment” under the terms of a merger agreement.  Shareholder Representative Services LLC v. Gilead Sciences Inc. et al., C.A. No. 10537-CB (Del. Ch. Mar. 15, 2017).  As noted by the Court, this case turned on the interpretation of one word—“indication”—as it was used in a merger agreement.  Finding the term “ambiguous when construed within the four corners of the merger agreement,” the Court relied on extrinsic evidence—primarily related to the negotiation history—to determine that the limited approval of a drug to treat a narrow subpopulation of blood cancer patients did not constitute the requisite approval for a specified “indication” that would trigger the contractual milestone payment.

Read more

On March 3, 2017, the Supreme Court of the State of Delaware affirmed the dismissal of “Caremark” claims for alleged bad-faith failure of oversight brought derivatively by a stockholder against the directors of Qualcomm, Inc. in the context of international antitrust enforcement and other actions against the company.  Melbourne Mun. Firefighters’ Pension Trust Fund v. Paul E. Jacobs et al. C.A. No. 10872-VCM (Del. Mar. 3, 2017).  Without further elaboration, the Court’s brief order provides:  “it appears to the Court that the judgment of the Court of Chancery should be affirmed on the basis of and for the reasons assigned in its memorandum opinion dated August 1, 2016.”  Id. at *1 (citing Melbourne Mun. Firefighters’ Pension Trust v. Paul E. Jacobs, et al. and Qualcomm, Inc., C.A. No. 10872, 2016 WL 4076369 (Del. Ch. Aug 1, 2016)).  As discussed in our post regarding that decision, the Chancery Court dismissed the complaint for failure to plead that demand on the board was futile, because the complaint failed to set forth particularized allegations showing that the directors acted in bad faith by consciously disregarding their oversight duties and thus did not demonstrate that the directors faced a substantial likelihood of liability.  

Read more

On March 6, 2017, in a decision authored by Justice Margot Botsford, the Massachusetts Supreme Judicial Court affirmed the dismissal of an action for breach of fiduciary duty brought by former shareholders of EMC Corporation against its directors in connection with its merger with Dell Inc., finding that the claims could only have been brought derivatively.  Int’l Brotherhood of Electrical Workers Loc. No. 129 Benefit Fund v. Tucci, SJC-12137 (Mass. Mar. 6, 2017).  In its decision, the Court clarified that “the general rule of Massachusetts corporate law is that a director of a Massachusetts corporation owes a fiduciary duty to the corporation itself, and not its shareholders.”  Further, the Court found that the injury alleged—the undervaluation of EMC in the transaction—“qualifies as a direct injury to the corporation” and “fit[s] squarely within the framework of a derivative action,” which plaintiffs as former shareholders did not—and could not—bring.   

Read more

On February 27, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed for lack of standing a lawsuit for inspection of corporate books and records brought by a former stockholder squeezed out in a two-step merger.  Weingarten v. Monster Worldwide Inc., C.A. No. 12931-VCG, 2017 WL 752179 (Del. Ch. Feb. 27, 2017).  As noted by the Court, this case presented an issue of first impression:  whether a plaintiff seeking corporate records under Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220, must be a stockholder at the time the complaint is filed.  Based on the language of the statute, the Court held that the former stockholder lacked standing to bring a Section 220 action because he no longer owned shares following the merger.

Read more

On February 16, 2017, Judge Geoffrey W. Crawford of the United States District Court for the District of Vermont dismissed a putative shareholder class action against Keurig Green Mountain, Inc. (“Keurig”), Keurig’s former CEO and directors and corporate investors that acquired Keurig, alleging that the proxy disseminated to Keurig shareholders in connection with the buyout was materially false and misleading in violation of Sections 14(a) and 20(a) of the Securities Exchange Act.  Montanio v. Keurig Green Mountain, Inc., Case No. 5:16-cv-19.  The Court concluded that plaintiff’s primary allegation—that the board knowingly relied on depressed projections from management to justify accepting a low-value offer—failed to state a claim because plaintiff could not plead that the projections were objectively false.

Read more

On February 15, 2017, Vice Chancellor Laster approved a modification to a plan of allocation of settlement consideration in In re Dole Food Co., Inc., S’holder Lit., C.A. No. 8703-VCL (Del. Ch. Feb. 15, 2017).  The Court found the original plan was too administratively difficult and costly to implement due to a discrepancy between the number of class shares stipulated to in the prior settlement and the number of facially valid shares claimants submitted after the settlement.

Read more

On February 9, 2017, the Supreme Court of the State of Delaware affirmed the dismissal of a breach of fiduciary duty action brought by former shareholders of Volcano Corporation in connection with the acquisition of Volcano in a two-step all-cash tender offer and merger pursuant to Delaware General Corporation Law Section 251(h).  In re Volcano Corp. Stockholder Litig., C.A. No. 10485-VCM (Del. Feb. 9, 2017).  Without further elaboration, the Court’s brief order provides:  “it appears to the Court that the judgment of the Court of Chancery should be affirmed for the reasons stated in its decision.”  Id. at *1 (citing In re Volcano Corp. Stockholder Litig., 143 A.3d 727 (Del. Ch. 2016)).  As discussed in our post regarding that decision, the Chancery Court had held that because a fully informed, uncoerced majority of stockholders had tendered their shares during the first step of the two-step merger, the business judgment rule irrebuttably applied to the board’s decision to approve the merger.

Read more

On February 2, 2017, in Gordon v. Verizon Communications, Inc., No. 653084/13 (N.Y. App. Div. Feb. 2, 2017) (“Gordon”), the New York Supreme Court, Appellate Division, First Department reversed the decision of the trial court and approved a proposed nonmonetary settlement of a putative shareholders’ class action challenging the acquisition by Verizon Communications, Inc. (“Verizon”) of the 45% interest in Verizon Wireless held by subsidiaries of Vodafone Group PLC.  In doing so, the Appellate Division added to the five-factor Colt standard of review—and focused on—two additional factors for the evaluation of proposed nonmonetary class action settlements:  “whether the proposed settlement is in the best interests of the putative settlement class as a whole, and whether the settlement is in the best interest of the corporation.”  Id. at *21; see also In re Colt Indus. S’holder Litig., 155 A.D.2d 154 (N.Y. App. Div. 1990), aff’d as modified sub nom. Colt Indus. S’holder Litig. v. Colt Indus. Inc., 77 N.Y.2d 185 (1991).

Read more

On January 30, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed a shareholder suit for alleged breaches of fiduciary duty by the directors of Merge Healthcare, Inc. (“Merge”) in connection with its acquisition by IBM.  In re Merge Healthcare Inc. Stockholders Litigation, C.A. No. 11388-VCG (Del. Ch. Jan. 30, 2017).  Specifically, the Court found that “a fully informed, uncoerced vote of the [c]ompany’s disinterested stockholders cleansed the [m]erger here, resulting in the application of the business judgment rule.”  The Court applied this analysis even though it assumed (without finding) that the chairman of the board was a controlling stockholder because the Court found that the chairman “did not extract any personal benefits because his interests were fully aligned with the other common stockholders.”            

Read more

On January 19, 2017, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery dismissed a shareholder derivative suit claiming a breach of fiduciary duty by the directors of United Parcel Service, Inc. (“UPS”) for an alleged failure of oversight in connection with UPS’s compliance with laws governing the transportation and delivery of cigarettes.  Horman v. Abney, C.A. No. 12290-VCS (Del. Ch. Jan. 19, 2017).  Specifically, the Court found that plaintiffs failed to plead adequately that making a demand on UPS’s board to pursue the claims would have been futile because the complaint did not contain factual allegations sufficient to support a reasonable inference that the director defendants faced a substantial likelihood of personal liability.  

Read more

On January 24, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery granted summary judgment in favor of plaintiff, a shareholder of Nutrisystem, Inc., who sued Nutrisystem and its directors for declaratory judgment to invalidate a provision in Nutrisystem’s bylaws purporting to require a vote of two-thirds of the company’s shares before a director could be removed from the board.  Frechter v. Zier, C.A. No. 12038-VCG (Del. Ch. Ct. Jan. 24, 2017).  Specifically, the Court held that the supermajority requirement violated Section 141(k) of the Delaware General Corporation Law (“DGCL”), which permits removal of a director by a simple majority vote of shares.

Read more

On January 19, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed a derivative suit brought by a shareholder of Mattel, Inc. (“Mattel”), after its board of directors declined to sue management to recover payments made to its former CEO under severance and consulting agreements.  Andersen v. Mattel, Inc., C.A. No. 11816-VCMR (Del. Ch. Jan. 19, 2017).  Vice Chancellor Montgomery-Reeves found that plaintiff failed to plead sufficiently particularized facts alleging gross negligence or bad faith, where the board made its decision after an investigation of the underlying events and also considered the potential consequences of the contemplated litigation.

Read more

On January 5, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed a breach of fiduciary duty suit brought by a former shareholder against the eight members of the board of directors of Solera Holdings, Inc. (“Solera”) that approved a go-private merger with an affiliate of Vista Equity Partners (“Vista”).  In re Solera Holdings, Inc. Stockholder Litig., C.A. No. 11524-CB (Del. Ch. Jan. 5, 2017).  In doing so, Chancellor Bouchard relied on the doctrine set forth in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), and applied the business judgment rule to the directors’ decision because the merger—which at the time of suit had already closed—had been approved by a disinterested majority of Solera’s stockholders in “a fully-informed and uncoerced vote.”

Read More

On December 27, 2016, Chancellor Andre G. Bouchard of the Delaware Court of Chancery denied in part a motion to dismiss a putative shareholder class action challenging a fee-shifting bylaw recently adopted by Paylocity Holding Corporation.  Solak v. Sarowitz, C.A. No. 12299-CB (Del. Ch. Dec. 27, 2016).  Specifically, the Court found the fee-shifting bylaw was facially invalid even though it only applied to actions filed outside of Delaware, which would contravene Paylocity’s valid exclusive-forum bylaw. 

Read more

On January 4, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Court of Chancery of the State of Delaware dismissed a putative class action complaint against United Capital Corporation (“United Capital”), its board of directors, and A.F. Petrocelli, who is board chairman and CEO, and the owner of 94% of United Capital’s stock, in connection with a short-form merger through which Petrocelli acquired all outstanding stock of the company.  In re United Capital Corp., Stockholders Lit., C.A. No. 11619-VCMR (Del. Ch. Jan. 4, 2017).  Plaintiffs sought a quasi-appraisal remedy for allegedly inadequate disclosures in the notice of merger.  The court found the disclosures provided sufficient material information to the minority shareholders to enable them to determine whether to pursue an appraisal and dismissed the claims.  

Read more

On December 16, 2016, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery relied on the final deal price to determine the fair value of stock in Lender Processing Services, Inc. (“LPS”), in an appraisal action brought by shareholder petitioners after Fidelity National Financial, Inc. (“Fidelity”) acquired LPS.  Merion Capital L.P., et al. v. Lender Processing Services, Inc., C.A. No. 9320-VCL.  While the court conducted its own DCF (discounted cash flow) analysis drawing from expert submissions, Vice Chancellor Laster ultimately deferred entirely to the deal price, finding that the sale process was fair and based on meaningful competition in a well-functioning market, and thus generated reliable evidence of fair value.

Read more

On December 8, 2016, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery granted a motion to appoint lead counsel in an appraisal action—over the objection of one group of petitioning shareholders—invoking the inherent power of the Court to manage its operations.  In re Appraisal of Rouse Properties, Inc., C.A. No. 12609 (Del. Dec. 8, 2016).  In so deciding, Vice Chancellor Slights analogized appraisal proceedings to class actions and found that the appointment of lead counsel in an appraisal proceeding did not infringe on petitioning shareholders’ statutory right to “participate fully” in the action. 

Read more

On November 28, 2016, in a decision penned by Chief Justice Leo E. Strine Jr., the Delaware Supreme Court affirmed the Delaware Court of Chancery’s ruling that fraud in the inducement could not be raised as a defense to a summary advancement proceeding.  Trascent Mgmt. Consulting, LLC v. Bouri, No. 126, 2016 (Del. Nov. 28, 2016).  More specifically, the Court held: “Where a party has employed an officer under a contract where that party agreed to provide for advancement [of legal fees and costs] . . . until a court’s final judgment that the officer is not entitled to indemnification, that party may not escape the obligation by injecting into a summary advancement proceeding a defense based on the argument that the underlying contract under which the parties are operating is invalid altogether, because of fraud in the inducement.”

Read more

On December 5, 2016, the Supreme Court of the State of Delaware reversed a dismissal of a shareholder derivative action after finding that the complaint adequately pled that a majority of the directors of Zynga Inc. (“Zynga”) lacked the independence to impartially consider a lawsuit asserting breach of fiduciary duty claims against Zynga’s controlling stockholder and former CEO and another director.  Sandys v. Pincus, C.A. No. 9512-CB (Del. Dec. 5, 2016). 

Read more

On November 30, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed a pair of shareholder derivative suits against nominal defendant The Bank of New York Mellon Corporation (“BNYM”) that sought to hold certain of its current and former directors and officers liable for allegedly causing or permitting certain misconduct to occur in the bank’s foreign exchange business.  Zucker v. Hassell, et al., C.A. No. 11625-VCG (Del. Ch. Ct. Nov. 30, 2016); Kops v. Hassell, et al., C.A. No. 11982-VCG (Del. Ch. Ct. Nov. 30, 2016).  The Court dismissed both complaints for failure to adequately plead that BNYM’s board of directors wrongfully refused the shareholders’ respective litigation demands, further reinforcing the difficulties that would-be plaintiffs face in satisfying the pleading standards required to obtain derivative standing to sue on behalf of a Delaware corporation.   

Read more

On November 23, 2016, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery dismissed derivative claims asserted by GAMCO Asset Management (“GAMCO”), stockholder of Clear Channel Outdoor Holdings Inc. (“CCOH”), against CCOH and its board, CCOH’s controlling stockholder, iHeartCommunications Inc. (“iHC”) and iHC’s parent company, iHeartMedia Inc. (“iHM”), and two private equity funds with a combined controlling interest in iHM and iHC.  GAMCO Asset Management Inc. v. iHeartMedia Inc., C.A. No. 12312-VCS (Del. Ch. Nov. 23, 2016).  The Court found that plaintiff’s claims were released by an earlier settlement of related issues, barred by res judicata, and that the business judgment rule protected the CCOH board and controlling stockholders from GAMCO’s claims for breach of fiduciary duty. 

Read more

On November 30, 2016, Chancellor Andre G. Bouchard of the Delaware Court of Chancery granted, in part, ValueClick Inc.’s motion to dismiss in a fraud and contract dispute over alleged misrepresentations relating to the sale of certain of its subsidiaries to IAC Search, LLC.  IAC Search, LLC v. Conversant LLC (f/k/a ValueClick, Inc.), C.A. No. 11774-CB, 2016 WL 6995363 (Del. Ch. Nov. 30, 2016).  ValueClick, now known as Conversant LLC, sold six subsidiaries — including Investopedia, LLC — to IAC for $90 million in January 2014 pursuant to a Stock and Asset Purchase Agreement (the “Purchase Agreement”).  In its complaint, IAC alleged that ValueClick fraudulently induced IAC to overpay for Investopedia by supplying false information to IAC during the due diligence process.  IAC also asserted several claims for breaches of representations and warranties included in the Purchase Agreement.  Although the Court upheld some of the breach of contract claims, Chancellor Bouchard found that “certain provisions of the [Purchase Agreement] add up to a clear disclaimer of reliance on extra-contractual statements that bar[] IAC’s claim for fraud.”

Read more

On November 16, 2016, the Delaware Supreme Court affirmed a Delaware Court of Chancery decision by Vice Chancellor Sam Glasscock III that dismissed derivative and direct claims against two board members of Premium of America, LLC (“Premium”) and an affiliate.  Joseph Penar Family Trust v. Adams, No. 250-2016 (Del. Nov. 16, 2016), aff’g, C.A. No. 10441 (Del. Ch. Apr. 28, 2016).  Plaintiffs—members of Premium, a Delaware limited liability company (“LLC”)—had alleged that defendants misappropriated funds when liquidating the company’s assets in breach of their fiduciary duties.  The Supreme Court held that the Chancery Court “correctly determined that the appellants’ failure to allege in a non-conclusory fashion the circumstances of the alleged misappropriation required dismissal of the amended complaint.”  

Read more

On November 10, 2016, Chancellor Andre Bouchard of the Delaware Chancery Court granted the appraisal petition of former stockholders in Farmers & Merchants Bancorp of Western Pennsylvania, Inc. (“F&M”), awarding a “fair value” of $91.90 per share, rather than the merger price ($83 per share) at which the bank was actually acquired in October of 2014 by NexTier, Inc., another community bank in western Pennsylvania.  Dunmire et al. v. Farmers & Merchants Bancorp of Western Pennsylvania, Inc., C.A. No. 10589-CB (Del. Ch. Nov. 10, 2016).  The judicially determined appraisal amount reflects the Court’s decision to reject the valuations and certain methodologies advanced by both parties’ experts and instead to rely exclusively on a “discounted net income” valuation—a method that both parties agreed was conceptually appropriate—as applied by the Court.   

Read more

On October 31, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery entered a final post-trial decision resolving a dispute concerning the proper scope of a post-closing non-compete covenant entered into by parties to a stock sale.  Brace Industrial Contracting, Inc. v. Peterson Enterprises, Inc., Consol. C.A. No. 11189-VCG (Del. Ch. Oct. 31, 2016).  Although Vice Chancellor Glasscock had previously ruled for plaintiffs, preliminarily enjoining defendants from competitive activities that plaintiffs claimed were barred by the covenant, the Court’s final decision lifted the preliminary injunction after considering extrinsic evidence to interpret the disputed contractual terms.  

Read more

On October 21, 2016, Judge Sim Lake of the United States District Court for the Southern District of Texas dismissed with prejudice a putative securities class action against Eagle Rock Energy Partners, L.P. (“Eagle Rock”), Vanguard Natural Resources LLC (“Vanguard”), their affiliates and their directors.  Braun v. Eagle Rock Energy Partners, L.P., 4:15-cv-01470 (S.D. Tex., Oct. 21, 2016).  Plaintiffs, a purported class of Eagle Rock unitholders, asserted that the joint proxy filed in connection with Vanguard’s $474 million acquisition of Eagle Rock did not adequately warn about a potential debt covenant breach by Vanguard and was therefore false or misleading.  The Court found that the disclosures in the proxy, taken together with Vanguard’s other public filings, rendered the alleged misstatements and omissions immaterial.

Read more

On October 18, 2016, Chancellor Andre Bouchard of the Delaware Court of Chancery dismissed a shareholder derivative action against the directors of Capital One Financial Corporation (“Capital One”), finding that plaintiff failed to plead demand futility in connection with his breach of fiduciary duty claims.  Reiter v. Fairbank, C.A. No. 11693-CB, 2016 WL 6081823 (Del. Ch. Oct. 18, 2016).  The Court held that the allegations—relying in large part on records obtained from Capital One under Section 220 of the Delaware General Corporation Law, which the Court found were incorporated by reference into the complaint—did not “reasonably permit . . . an inference that the defendants consciously allowed Capital One to violate the law” so as to demonstrate bad faith and excuse the demand requirement.

Read more

On October 12, 2016, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery dismissed a putative shareholder class action alleging fiduciary breaches by the board of directors of OM Group, Inc. (“OM”) arising from OM’s cash-out merger with Apollo Global Management, LLC (“Apollo”).  In re OM Group, Inc. S’holders Litig., Consol. C.A. No. 11216-VCS (Del. Ch. Oct. 12, 2016).  The conduct of directors in cash-out mergers is typically subject to enhanced scrutiny under Revlon.  Because OM’s shareholders had voted overwhelmingly to approve the merger in an uncoerced vote that the Court found to be fully informed, the Court found the board’s conduct was protected by the “irrebutable business judgment rule” under Corwin v. KKR Fin. Holdings, LLC, 125 A.3d 304 (Del. 2015), and dismissed the case.  The Court reached this conclusion despite allegations of an egregiously flawed sales process that the Court described as “disquieting.”

Read more

On October 10, 2016, Vice Chancellor Travis Laster of the Delaware Court of Chancery granted a motion to dismiss in an action against the directors of bookseller Books-A-Million, Inc. and other defendants following a “squeeze-out” merger by the company’s controlling shareholders.  In re Books-A-Million, Inc., C.A. No. 11343, (Del. Ch. Oct. 10, 2016).  Vice Chancellor Laster found that the complaint did not sufficiently allege deviations from the framework established by the Delaware Supreme Court in Kahn, et al. v. M&F Worldwide Corp. 88 A.3d 635 (Del. 2014) (“M&F Worldwide”).  Therefore, the Court reviewed the transaction under the “business judgment rule” and dismissed the complaint.  

Read more

​On September 29, 2016, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery dismissed a shareholder action against the directors and officers of Longview Energy Company (“Longview”) in connection with a board decision to dissolve the company following the sale of a significant portion of its assets.  The Huff Energy Fund, L.P., v. Robert D. Gershen, et al., C.A. No. 11116-VCS (Del. Ch. Sept. 29, 2016).  The Court held that defendants had not breached their fiduciary duties after rejecting plaintiff’s request to apply Revlon or Unocal scrutiny to the dissolution and finding in any event that the approval by stockholder vote “irrebutably reinstat[es] the business judgment rule.”      

Read more

On September 28, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed a shareholder challenge to the acquisition of Millennial Media, Inc. (“Millennial”) by AOL Inc. (“AOL”).  Nguyen v. Barrett, C.A. No. 11511-VCG (Del. Ch. Sept. 28, 2016). Plaintiff had sought post-closing damages for the Millennial board’s alleged failure to disclose (1) certain unlevered free cash flows and (2) details of compensation for Millennial’s financial advisor.  The Court rejected both claims.    
    
Read more

On September 27, 2016, the Third Circuit Court of Appeals reversed a District Court ruling and granted the preliminary restraining order sought by the Federal Trade Commission (“FTC”) and the state of Pennsylvania to enjoin a merger of two state hospital systems pending administrative review by the FTC.  FTC v. Penn State Hershey Medical Center, No. 16-2365 (3d Cir. Sept. 27, 2016).  The Court rejected as legally incorrect the District Court’s formulation of the geographic market for evaluating the possible anti-competitive effects of the proposed merger.

Read more