By: Scott E. Waxman and David Valenti
In deciding a motion to dismiss derivative and direct shareholder claims, the Delaware Chancery Court addresses the defense of release, examines whether allegedly defensive board actions trigger the heightened Unocal test, and judges the materiality of proxy statement omissions. Although the Court made clear that the affirmative defense of release could be considered in a motion to dismiss, it held that Plaintiffs’ claims did not have the “same identical factual predicate” with previously settled federal class litigation. The Court also applied the Unocal test in analyzing whether the alleged adoption of entrenchment measures state a viable claim, and discussed the standard for pleading material omissions to a proxy statement.
In In re Ebix, Inc. Stockholder Litigation, Plaintiff shareholders brought six claims against Ebix, Inc., (“Ebix”) and its board of directors (the “Board”) arising out of several actions taken by the Board in the lead up to a later abandoned merger attempt. Claims I-III challenged several documents that related to executive compensation arrangements made by Ebix and approved by its Board. Claims IV-V challenged several of the Board’s actions as breaches of its fiduciary duties on the grounds that each constituted an improper entrenchment device by the board, including Ebix’s entry into a Director Nomination Agreement (the “DNA”) with a dissenting shareholder and its adoption of a bundle of new bylaws. In claim VI, Plaintiffs alleged the Board breached its fiduciary duties by issuing a materially misleading and incomplete 2014 Proxy Statement and sought a declaration that the 2014 Annual Shareholders’ Meeting’s actions were invalid.
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