Entire Fairness – Delaware Docket

DELAWARE HOLDS THAT A SPECIAL COMMITTEE FORMED AB INITIO WILL CLEANSE A CONFLICTED TRANSACTION IN THE CONTEXT OF A MAJORITY-CONFLICTED BOARD AND UNDERSCORES THE IMPORTANCE OF DISCLOSURES REGARDING FINANCIAL ADVISORS

Jul 17 2020

By Scott E. Waxman and Sara M. Kirkpatrick

In Salladay v. Lev, C.A. No. 2019-0048-SG (Del. Ch. Feb. 27, 2020), the Delaware Court of Chancery held that former stockholders of Intersections, Inc. (“Intersections”) adequately pled facts that supported a pleading stage inference that WC SACD’s take-private merger of Intersections (the “Merger”) was subject to entire fairness review, because half of Intersections’ board stood on both sides of the transaction, and that it was reasonably conceivable that the merger was not entirely fair.

Court Finds Defendants Did Not Breach Fiduciary Duties by Causing Company to Accumulate Cash in Anticipation of Stock Redemption Rather than Investing in Long-Term Growth

Jul 09 2020

By: David L. Forney and Michael C. Payant

In The Frederick Hsu Living Trust v. Oak Hill Capital Partners III, L.P., et al., C.A. No. 12108-VCL (Del. Ch. May 4, 2020), the Delaware Court of Chancery (the “Court”) held that the controlling stockholder, directors, and named officers of ODN Holding Corporation (the “Company”) had not breached their fiduciary duties to the Company when they chose to pursue a cash-accumulation strategy in anticipation of redeeming preferred shares, rather than investing in the Company’s business for long-term growth for the possible benefit of common stockholders.

Chancery Court Calls Plaintiffs’ Bet by Granting in Part and Denying in Part Partial Motion to Dismiss Breach of Fiduciary Duty Claims in Case Alleging Failure to Disclose Material Facts and Structuring a Transaction for Defendants’ Personal Financial Benefit

May 05 2020

By Joanna Diakos and Alidad Vakili

The Delaware Court of Chancery granted in part and denied in part Plaintiff’s partial motion to dismiss, finding that the standard for breach of fiduciary duty was not met as against certain directors and officers of the Company based on allegations they failed to disclose facts relating to a tender offer, but was met as against the directors and one of the officers on allegations that they approved a tender offer where they were expected to receive a personal financial benefit.

Transactions Involving Controlling Stockholder as a Result of Actual or Inherent Coercion are Subject to Entire Fairness Standard of Review

Mar 19 2020

By: Annette Becker and Rich Minice

In In re Tesla Motors, Inc. Stockholder Litigation, C.A. No. 12711-VC (Del. Ch. Feb. 4, 2020), the Delaware Court of Chancery rejected the defendants’ (Elon Musk and the Tesla, Inc. (“Tesla”) board of directors (“Defendants”)) novel position that “inherent coercion” doctrine–as it relates to a controlling stockholder–evaporates when a case for breach of fiduciary duty moves beyond the pleading stage and stockholder ratification exists, and re-affirmed the Delaware principle that entire fairness is the appropriate standard of review. The Court rejected motions for summary judgment by both parties finding that there remained issues of material fact to be determined as to whether stockholder ratification was fully informed and uncoerced, and whether a majority of the Tesla board of directors approving the merger was independent.

MAINTAINING GOOD CORPORATE GOVERNANCE: ENTIRE FAIRNESS CREEPING INTO ACTIONS BENEFITING A CONTROLLING STOCKHOLDER

Oct 22 2019

By: Scott Waxman and Rich Minice

In Tornetta v. Musk, Civil Action No. 2018-0408-JRS (Del. Ch. Sep. 30, 2019), the Delaware Court of Chancery addressed the appropriate standard of review to apply when examining stockholder approval of a conflicted controller for the controller’s own executive incentive compensation package. In January 2018, Tesla, Inc.’s board of directors (the “Board”) approved a compensation package (the “Award”) for its CEO, Elon Musk. The Board then submitted the Award to Tesla’s stockholders for approval. The Award was overwhelmingly approved. Tornetta (“Plaintiff”), a Tesla stockholder, brought four direct and derivative claims against Musk and members of the Board (the “Defendants”) alleging the Award is a product of breaches of fiduciary duty, constitutes waste, and unjustly enriches Musk. The Defendants moved to dismiss all counts under Rule 12(b)(6) (the “Motion”).

Delaware Court of Chancery Allows Stockholder’s Derivative Claim to Proceed Against Alleged Controlling Stockholder Under Entire Fairness Standard of Review

Sep 04 2019

By Scott E. Waxman and Frank Mazzucco

In Reith v. Lichtenstein et al., C.A. No. 2018-0277-MTZ (Del. Ch. Jun. 28, 2019), the Delaware Court of Chancery, in considering a motion to dismiss, allowed a stockholder’s derivative complaint to proceed against a minority stockholder under the entire fairness standard of review, because the complaint had sufficiently alleged that such minority stockholder, by exercising “actual control” as part of transactions being challenged, was effectively a controlling shareholder and thus owed fiduciary duties.

Delaware Court of Chancery Applies Entire Fairness Review in Finding That Controlling Stockholders and Special Committee Members Breached Fiduciary Duties to Target Stockholders

Sep 04 2019

By Lisa Stark and Frank Mazzucco

In FrontFour Capital Group LLC v. Taube, C.A. No. 2019-0100-KSJM (Del. Ch. Mar. 11, 2019), the Delaware Court of Chancery found that, due to their conduct in connection with two mergers of affiliated entities, controlling stockholders and special committee members breached their fiduciary duties to target stockholders under the entire fairness standard of review and failed to provide certain material disclosures to stockholders.

Court to Sellers: Stockholder Notice Rights Matter

Jul 16 2019

By Scott Waxman and Nadia Brooks

In Mehta v. Mobile Posse, Inc., six causes of action were before the Delaware Court of Chancery in Plaintiff’s complaint alleging inadequate stockholder notice and breach of directors’ fiduciary duty of disclosure regarding the merger of Mobile Posse. The defendants, Mobile Posse and its board, asserted motions for judgments on the pleadings for all counts, arguing they were entitled to the judgments because the violations were remedied by the supplemental notice they issued. The Court denied all but one of defendants’ motions, finding numerous deficiencies in the notice process and finding that the merger was not entirely fair.

CHANCERY COURT DISMISSES COMPLAINT FOR FAILURE TO STATE A CLAIM, HOLDING THAT REVIEW OF SALE UNDER ENTIRE FAIRNESS IS NOT WARRANTED

May 31 2019

By: Joanna Diakos and Adam Heyd

In Aron English and Richard Peppe v. Charles K. Narang, et al., C.A. No. 2018-0221-AGB (Del. Ch. March 20, 2019), the Delaware Court of Chancery (the “Court”) dismissed a stockholder suit against the board members of NCI, Inc., a publicly-traded company (the “Company”), for failure to state a claims for relief in connection with allegations of breach of fiduciary duty, and against H.I.G. Capital, LLC (“HIG”) for aiding and abetting such breach during a sale of the Company to HIG. The Court held that the controlling stockholder’s alleged need for liquidity was not sufficient to compel review of the Company sale under an “entire fairness” standard, and that the vote of stockholders approving the sale was fully informed.

Chancery Court Grants Preliminary Injunction Restraining Former Director from Selling Shares Allegedly Invalidly Issued to Himself

Mar 26 2019

By: Annette Becker and Michael Payant

In Applied Energetics, Inc. v. George Farley and AnneMarieCo., LLC (C.A. No. 2018-0489-TMR), the stockholders of Applied Energetics, Inc. (“AE” or “Plaintiff”) sued defendants George Farley (“Farley”) and his family owned-holding company AnneMarieCo., LLC (“AMC”) for issuing stock to himself and transferring such shares to AMC in a self-interested transaction. Plaintiff sought a preliminary injunction to restrain defendants from selling AE shares during the pendency of the stockholder litigation. The Delaware Court of Chancery (the “Court”) granted the preliminary injunction holding that AE established reasonable probability of success on the merits for its claims.

Catagory:Entire Fairness