Business Judgment – Page 4

Chancery Court Holds That Stockholder Vote on Merger Was Neither Fully-Informed nor Uncoerced

Apr 20 2017

By: Lisa R. Stark and Taylor B. Bartholomew

In In re Saba Software, Inc. Stockholder Litigation, C.A. No. 10697-VCS (Del. Ch. Mar. 31, 2017, revised Apr. 11, 2017), the Delaware Court of Chancery held that the board of Saba Software, Inc. could not invoke the business judgment rule under the Corwin doctrine in response to a fiduciary challenge arising from Saba’s acquisition by Vector Capital Management, L.P. According to the Court, plaintiff pled facts which supported a reasonable inference that the stockholder vote approving the acquisition was neither fully-informed nor uncoerced. The Court also denied defendants’ motion to dismiss plaintiff’s claims that the Saba board breached its duty of loyalty and engaged in acts of bad faith by rushing the sales process, refusing to consider alternatives to the merger and granting itself substantial equity awards.

Chancery Court Clarifies the Cleansing Power of an Uncoerced and Fully Informed Disinterested Majority Stockholder Vote

Feb 03 2017

By: Annette Becker and Will Smith

In In re Merge Healthcare Inc. Stockholders Litigation, No. 11388-VCG (Del. Ch. Ct. January 30, 2017), the Delaware Court of Chancery granted the defendant directors’ motion to dismiss brought against the plaintiff stockholders, holding that the cleansing effect of an uncoerced and fully informed vote of a majority of disinterested shares shields company directors from liability for alleged fiduciary violations as to an improper merger price and process. The Court found that the business judgment rule applied on review as opposed to the entire fairness standard.

“Cleansing” the Merger: Stockholder Vote Protects Directors from Class Action Where Plaintiffs Fail to Sufficiently Allege Material Deficiency in Proxy Statement

Jan 11 2017

By: Joanna Diakos Kordalis and Max E. Kaplan

By memorandum-opinion dated January 5, 2017, Chancellor Bouchard granted defendants’ motion to dismiss a putative class action complaint in In re Solera Holdings, Inc. Stockholder Litigation. Specifically, the Court held that absent allegations specifically identifying material deficiencies in the operative disclosure documents, ratification by a majority of disinterested stockholders rendered defendant-directors’ approval of a merger subject to the business judgment rule.

REVLON AND UNOCAL ENHANCED SCRUTINY REJECTED FOR DISSOLUTION PLAN

Nov 05 2016

By Kevin P. Stichter and Nathan Harrill

In Huff Energy Fund v. Gershen, C.A. No. 11116-VCS, the Delaware Court of Chancery dismissed a stockholder’s challenge to the board of director’s decision to dissolve the company following an asset sale. The Court ruled that the enhanced scrutiny standards of Revlon and Unocal do not supplant the business judgment rule in the context of a company’s decision to dissolve.

Delaware Chancery Court Dismisses Revlon Claims Based on Fully Informed, Uncoerced Stockholder Vote

Oct 25 2016

By Lisa Stark and Jonathan Miner

In In Re OM Group, Inc. Stockholder Litigation, C.A. No. 11216-VCS (Del. Ch. Oct. 12, 2016), the Delaware Court of Chancery dismissed Revlon claims, on the basis that the challenged merger had been approved by a disinterested, uncoerced and fully-informed majority vote of the target’s stockholders and therefore the business judgment rule applied.

DELAWARE CHANCERY COURT APPLIES MFW FRAMEWORK TO DISMISS SUIT BY MINORITY STOCKHOLDERS IN CONNECTION WITH SQUEEZE-OUT MERGER

Oct 25 2016

By Annette Becker and Joseph Phelps

In In re Books-A-Million, Inc. Stockholders Litigation, No. 11343-VCL (Del. Ch. Oct. 10, 2016), the plaintiffs, minority stockholders of Books-A-Million, Inc. (the “Company”), alleged that the Company’s directors, controlling stockholders and several of its officers breached their fiduciary duties in connection with a squeeze-out merger effected by the controlling stockholders in 2015 to take the Company private. The Court of Chancery held that the plaintiffs failed to plead facts to take the transaction outside the six-pronged framework approved by the Delaware Supreme Court in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (2014) (“MFW”), and, consequently, the business judgment rule, rather than the entire fairness test, applied in reviewing the merger. Upon application of the business judgment rule, the Court dismissed the case.

Directors’ Failure to Consider Speculative Projections in Recommending Tender Offer to Stockholders Insufficient to Plead a Claim for Breach of the Duty of Loyalty Based on Bad Faith

Jun 22 2016

By: Michelle McCreer y Repp and Benjamin Ken dall

In In re Chelsea Therapeutics International Ltd. Stockholders Litigation, Consol. C.A. No. 9640-VCG (Del. Ch. May 20, 2016), the Delaware Chancery Court held that Plaintiffs, who alleged bad faith on the part of corporate directors based on a failure to adequately take into account speculative financial projections in evaluating the adequateness of an acquisition offer, had failed to state a claim on which relief could be granted.

Chancery Court Determines Appropriate Standard of Review for Cash Flow “Tunneling” by Controlling Stockholder

Feb 13 2016

By David Forney and Eric Taylor

In In Re EZCorp Inc. Consulting Agreement Derivative Litigation, C.A. No. 9962-VCL (Del. Ch. January 25, 2016) (Laster, V.C.) the Delaware Court of Chancery granted in part and denied in part a 12(b)(6) motion to dismiss for failure to state a claim, but at its heart the ruling addressed the proper standard of review in a case alleging self-dealing by a controlling stockholder for “tunneling” cash flow and receiving non-ratable benefits from related-party services agreements. After a detailed and extensive analysis, the court held that the entire fairness standard of review, and not the business judgment standard of review, applied to non-merger business transactions where controlling stockholders can exact non-ratable benefits from the company, regardless of the type of transaction or method of extraction.

Stockholder’s Challenge to $35M Stock Issuance to Freeport-McMoran CEO Dismissed by Delaware Court of Chancery

Oct 19 2015

By Holly Hatfield and James Parks

A stockholder’s claims regarding a $35 million stock issuance to Freeport-McMoran CEO Richard Adkerson were dismissed. Governance changes within Freeport that were thought to have triggered an option in Adkerson’s employment contract that would have permitted him to quit and receive a $46 million severance package allowed the board to preempt that eventuality by issuing him $35 million in stock.

In Shaev v. Adkerson, C.A. No. 10436-VCN (Del. Ch. Oct. 5, 2015), Vice Chancellor Noble, writing for the Delaware Court of Chancery, granted defendant Freeport-McMoran’s (“Freeport” or the “Company”) motion to dismiss plaintiff Victoria Shaev’s (“Shaev” or “Plaintiff”) direct and derivative claims under Court of Chancery Rules 12(b)(6) and 23.1.

Tossed Out With The Weeds – Delaware Chancery Court Dismisses Derivative Action Alleging Breaches of Fiduciary Duty by DuPont Directors and Officers

May 18 2015

By Holly Vance and Jonathan Miner

In Ironworkers v. Andreotti, Vice Chancellor Glasscock of the Delaware Chancery Court granted DuPont’s motion to dismiss for plaintiff’s failure to properly state a derivative action claim. In reaching its decision, the Court affirmed that the business judgment rule is the standard of review used in derivative actions where the plaintiff has made a demand of the board of directors and the board declined such demand.

Beginning in 2002 DuPont began to develop genetically modified corn and soybean seeds to compete with Monsanto’s “Roundup Ready” seeds, which have the ability to survive application herbicides, including Monsanto’s own Roundup herbicide. DuPont referred to the product it was developing as “GAT”. During this same time period, DuPont was also licensing the Roundup Ready gene trait from Monsanto. DuPont encountered setbacks in field testing of GAT and as a result began experiments in combining GAT together with the Roundup Ready gene trait. The relationship between DuPont and Monsanto deteriorated as DuPont attempted to develop its GAT products, and in May 2009 Monsanto brought suit against DuPont for breaches of the license agreement for the Roundup Ready gene trait, patent infringement and other related claims. In July 2012 a jury found in favor of Monsanto and awarded it $1.2 billion in damages. DuPont began steps to appeal the decision and began negotiating a settlement with Monsanto. On March 25, 2013 DuPont and Monsanto entered into a settlement agreement that was structured as a new license agreement and included royalty payments to Monsanto of $1.75 billion over 10 years for the rights to use the patent for the Roundup Ready gene trait.

Catagory:Business Judgment