Business Judgment – Delaware Docket

Chancery Court Reaffirms Application of Business Judgment Rule from M & F Worldwide While Dismissing Unsupported Complaint

Oct 25 2021

By Michael Waller and Molly Mugford

In Franchi v. Firestone, et al., C.A. No. 2020-0503-KSMJ (Del. Ch. May 10, 2020), Defendants’ moved to dismiss Plaintiffs’ action challenging a going-private transaction claiming that the Special Committee set up by the Board of Directors (“Board”) to analyze the merger lacked independence and failed to exercise its duty of care, and the vote of the minority stockholders was not informed. The Chancery Court granted Defendants’ motion to dismiss, relying on the business judgment rule and finding that Plaintiffs’ claims were unsupported and insufficient to undermine “the cleansing effect of the MFW conditions.”

Delaware Chancery Court reaffirms need for factual particularity in assessing demand futility and granted Defendants’ motion to dismiss

May 28 2021

By: Jessica Pearlman and Mary Nicholas

In a letter opinion, Mark Gottlieb, et al., v. Jonathan Duskin, et al, Civil Action No. 2019-0639-MTZ (Del. Ch. November 20, 2020), the Delaware Court of Chancery granted Defendants’ motion to dismiss Plaintiff’s complaint in its entirety for failure to satisfy, with enough factual particularity, that a demand that the board of directors pursue the corporate claim would have been futile under Rule 23.1.

CHANCERY COURT CLARIFIES MFW PROTECTIONS MUST BE IMPLEMENTED PRIOR TO ANY SUBSTANTIVE ECONOMIC NEGOTIATIONS

Sep 30 2020

By: David Forney and Claire Suni

In In re HomeFed Corporation Stockholder Litigation, C.A. No. 2019-0592-AGB (Del. Ch. July 13, 2020), the Delaware Court of Chancery (the “Court”) found that the controlling stockholder of HomeFed Corporation undertook substantive economic negotiations with its minority stockholders in connection with a proposed squeeze-out merger transaction prior to implementing the procedural protections set forth in Kahn v. M&F Worldwide Corp. (“MFW”). As a result, the Court ruled that the appropriate standard of review for the plaintiff’s claims of breach of fiduciary duty against the controlling stockholder and the board of directors was entire fairness, and not business judgment. The Court further found that two of the company’s directors were not independent and therefore could not avail themselves of exculpatory language in the company’s certificate of incorporation. The Court denied in full the defendants’ motion to dismiss under Rule 12(b)(6) for failure to state a claim for relief.

Court of Chancery Defers to Board of Director’s Business Judgment in Response to Stockholder’s Dividend Demand

May 19 2020

By: James S. Bruce and Marissa Leon

In Buckley Family Trust v. Charles Patrick McCleary, et al. (C.A. No. 2018-0903-AGB), the Delaware Court of Chancery (the “Court”) granted defendants’ motion to dismiss a stockholder’s claims to compel the company to pay a dividend and also dismissed the stockholder’s claim alleging breach of fiduciary duty of care regarding decisions made by the board of directors of the company.

WINDFALL OR FAIR? BREACH OF FIDUCIARY DUTY AND UNJUST ENRICHMENT CLAIM SURVIVES MOTION TO DISMISS

May 07 2020

By Whitney J. Smith and Mehreen Ahmed

In Gary D. Voigt v. James S. Metcalf et. al. and NCI Building Systems, Inc., C.A. No. 2018-0828-JTL (Del Ch. Feb. 10, 2020), the court denied defendants’ motion to dismiss, finding that the transaction at issue should be reviewed under the entire fairness standard and that the plaintiff, a stockholder of NCI Building Systems, Inc. (“NCI”), successfully stated claims for breach of fiduciary duty and unjust enrichment against private equity firm Clayton, Dubilier, & Rice (“CD&R”) and most of NCI’s directors in connection with a stock-for-stock merger between NCI and Ply Gem Parent, LLC (“Ply Gem”). The headline issue for the motion to dismiss was whether the plaintiff had pled facts that made it reasonably conceivable that CD&R controlled NCI despite owning less than a majority of NCI’s outstanding shares.

Court of Chancery Applies Entire Fairness Standard to PennyMac’s Reorganization Transaction

Apr 29 2020

By: Annette Becker and Marissa Leon

In Robert Garfield v. BlackRock Mortgage Ventures, LLC, et al (the “Defendants”) (C.A. No. 2018-9017-KSJM), the Court of Chancery denied a motion to dismiss claims of breach of fiduciary duties filed by Robert Garfield (the “Plaintiff”), an investor that claims a reorganization of Private National Mortgage Acceptance Company, LLC (“PennyMac, LLC”) was unfair to certain stockholders. The Court of Chancery found that the complaint stated a claim when evaluated under the entire fairness standard of review where stockholders constituting a “control group” stood to benefit from the transaction.

DEMAND FOR BOOKS AND RECORDS UNDER SECTION 220 TO AID IN PROXY CONTEST IS NOT A PROPER PURPOSE, CHANCERY COURT FINDS

Mar 20 2020

By: C.J. Voss and Adam Heyd

In High River Limited Partnership, Icahn Partners Master Fund LP, and Icahn Partners LP v. Occidental Petroleum Corporation, C.A. No. 2019-0403-JRS (Del. Ch. November 14, 2019), the Delaware Court of Chancery (the “Court”) dismissed a demand by stockholders of Occidental Petroleum Corporation (“Occidental”) under Section 220 of the Delaware General Corporate Law (“Section 220”) for documents and information relating to Occidental’s acquisition of Anadarko Petroleum and related transactions. The Court held that the stockholders’ demand for books and records to aid in a proxy contest did not constitute a proper purpose, and that a broad demand for corporate records was not necessary and essential to the stockholders’ purpose of challenging company management over its decision to enter into a transaction.

IN REJECTING DEFENDANTS’ MOTION FOR DISMISSAL, CHANCERY COURT FINDS THAT INDIVIDUAL FIDUCIARY MAY BE HELD LIABLE FOR TRADES THAT AN ASSOCIATED ENTITY OR FUND MAKES

Apr 07 2019

By: Scott E. Waxman and Adrienne Wimberly

In the consolidated stockholder derivative litigation, In re Fitbit, Inc., CA No. 2017-0402-JRS (Del. Ch. Dec. 14, 2018), the Delaware Court of Chancery denied the Defendants’ motion to dismiss Plaintiffs’ insider trading and breach of fiduciary duty claims. The claims stem from alleged insider knowledge of members of Fitbit’s Board of Directors (the Board) and chief financial officer that Fitbit’s PurePulse™ technology was not as accurate as the company claimed. Plaintiffs alleged that members of the Board structured the company’s Initial Public Offering (IPO) and Secondary Offering (together, “the Offerings”) to benefit Fitbit insiders and voted to waive employee lock-up agreements, thereby allowing those insiders, to prematurely sell stock in the Secondary Offering. As a result of their sales, the alleged insiders sold about 6.2 million shares for over $115 million in the IPO and about 9.62 million shares for over $270 million in the Secondary Offering.

Chancery Court Denies Dismissal of Breach of Fiduciary Duty Claims after Concluding that Stockholder Vote was Not Informed

Jan 14 2019

By: David Forney and Rachel P. Worth

In In re Tangoe, Inc. Stockholders Litigation, C.A. No. 2017-0650-JRS (Del. Ch. Nov. 20, 2018), the Delaware Court of Chancery denied the director defendants’ motion to dismiss the stockholder plaintiffs’ claim for breach of fiduciary duties on the basis that the stockholder vote approving the transaction was not informed and the defendants were therefore not entitled to business judgment rule deference at the pleading stage. The Court also found that the plaintiffs had adequately pled a breach of the fiduciary duty of loyalty against each of the director defendants, which would not be covered by the exculpatory clause in the company’s certificate of incorporation.

Court of Chancery Dismisses Derivative Suit for Failure to Demonstrate Demand Futility because Plaintiff Failed to Allege Particularized Facts

Jul 19 2018

By: Charles Carter and Caitlin Velasco

In Steinberg on behalf of Hortonworks, Inc. v. Bearden, C.A. No. 2017-0286-AGB (Del. Ch. May 30, 2018), the Delaware Court of Chancery granted the defendants’ motion to dismiss the stockholder plaintiff’s derivative claims for breach of fiduciary duties under Court of Chancery Rule 23.1, because the plaintiff failed to make a pre-suit demand or demonstrate that doing so would be futile. The Court found that the plaintiff failed to plead particularized facts sufficient to raise reasonable doubt that a majority of the directors on the Hortonworks, Inc. board could have exercised their independent and disinterested business judgment in responding to a pre-suit demand. Read More

Tag:Business Judgment